Micron Technology Inc. reported its fourth quarter earnings today, warning investors that it’s planning to take drastic measures by scaling back on plans to build out production capacity, amid what it called an “unprecedented” market downturn.
In a press release the company reported a net profit for the fourth quarter of $1.49 billion, with earnings before certain costs such as stock compensation coming to $1.45 per share. Revenue for the period came to $6.64 billion, down from $8.27 billion one year earlier. The results were mixed, with Wall Street analysts looking for lower earnings of $1.37 per share on higher revenue of $6.73 billion.
Micron also reported its fiscal 2022 results, posting earnings of $8.35 per share on revenue of $30.76 billion, up from $27.71 billion in sales the previous year.
Micron President and Chief Executive Sanjay Mehrotra (pictured) pointed out that fiscal 2022 was the company’s sixth consecutive year of positive free cash flow, something that helped it deliver a record $2.9 billion to its shareholders.
Whether it’s able to do that again next year is up for debate, however, for Micron’s first quarter forecast was about as miserable as it gets. The company said it’s anticipating earnings of anything from a 6 cent per share loss to a 14 cent per share profit, with revenue of between $4 billion and $4.5 billion. That contrasts with Wall Street’s forecast of a 69 cent per share profit on sales of $5.71 billion.
Micron specializes in dynamic random-access memory and NAND flash memory chips. DRAM is the kind of memory that’s commonly used in personal computers and servers, while NAND is the flash memory that’s found in smaller devices such as smartphones and USD drives.
In a conference call, Mehrotra said the DRAM industry has historically always been disciplined in terms of capital expenditure management and supply growth management. In line with that, the CEO announced that Micron will be taking drastic measures to ensure the health of its business. The plan calls for a 30% reduction in total capital spending, cutting back by about $8 billion overall. Its spending on wafer-fab equipment will be scaled back by 50%.
“We are taking decisive steps to reduce our supply growth including a nearly 50% wafer fab equipment capex cut versus last year, and we expect to emerge from this downcycle well positioned to capitalize on the long-term demand for memory and storage,” Mehrotra insisted.
Micron’s chief financial officer Mark Murphy provided a little more detail about Micron’s problems, saying the company’s already high inventory backlog is expected to get even higher in the coming months. “[Inventory levels]… will be over 150 days, we believe. And again, it’s a function of this unprecedented period, and we’re doing what we can to affect future supply or future capacity, to be in a position to work those inventories down,” Murphy said. “They’re high-quality inventory so they will be usable. And we’re managing working capital expenses, cash flow, all of them aggressively at this time.”
It’s not immediately clear if Micron’s planned cutbacks on capital expenditure will have any impact on the company’s long-term investment plans, which call for the company to spend $40 billion on expanding its U.S. chip production capacity. Those plans include the construction of a new memory chip plant in Idaho, at a cost of about $15 billion, as well as expansions of its existing sites.
Despite the soft outlook, Micron’s stock barely moved in after-hours trading, though it did fall 2% earlier in the day. The news may well have been expected given that Micron was one of the first major chipmakers to warn of a market downturn when it reported its third quarter results in June. Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that Wall Street wasn’t surprised because the company had already flagged global oversupply issues and the price pressure it’s inflicting on the industry. “Micron is a leader in the newer technologies like DDR5, and is a density leader in flash so it will do just fine in the long-term,” he said.
Micron’s stock is down more than 46% in the year to date, compared with a 24% drop in the S&P 500 and a 31% fall in the Nasdaq Composite Index.
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