Why Micron Plans to Reduce Memory Chip Supply in 2023

Micron said on Wednesday it would reduce memory chip supply and make more cuts to its capital spending plan, as the semiconductor firm struggles to clear excess inventory due to a slump in demand.

Shares of the company fell 5.8 percent to $59.44 (roughly Rs. 4,900) in afternoon trading.

Micron was the first major chipmaker to sound an alarm about falling demand for personal computers and smartphones earlier this year in the face of decades-high inflation.

Chipmakers and electronics companies, which had been preparing for the pandemic-led demand surge to sustain and had for long struggled with supply constraints, soon found themselves with overstocked inventory.

The broader weakness seeped throughout the industry, and is now affecting all end-markets from personal electronics to data centers to industrial. The Philadelphia SE Semiconductor index has declined over 31 percent so far this year.

“In order to significantly improve total inventory … DRAM bit supply will need to shrink and NAND bit supply growth will need to be significantly lower than previous estimates,” the company said.

Widespread supply and capex cuts typically denote a bottom for the memory industry and is a good sign, Wedbush Securities analyst Matt Bryson wrote in a note on Wednesday.

But he said there is potential for a longer demand trough that would likely weigh on the broader technology space.

Micron said it is reducing DRAM and NAND wafer starts — or the initial process in semiconductor production — by about 20 percent compared with the fourth quarter that ended on September 1.

For 2023, the company expects its year-on-year bit supply growth to be negative for DRAM and in the single-digit percentage range for NAND.

Micron’s outlook is likely “weighing on the perception that component suppliers/semi vendors have already baked adverse conditions into their outlooks, effectively derisking the stocks,” Bryson said.

© Thomson Reuters 2022