The chip boom likely over, as Micron says it’s in a ‘downturn’

“There are consumer-demand and inventory-related headwinds impacting the industry and consequently our fiscal-Q4 outlook,” Micron Chief Executive Sanjay Mehrotra told analysts Thursday.

Earlier in the day, the maker of dynamic random access memory (DRAM) and NAND chips reported third-quarter revenue of $8.64 billion, on target with analysts’ projections, but the outlook and comments about the rest of the tech industry that uses the company’s chips were the crux of most questions on the company’s post-earnings conference call.

“PC unit sales [are] now expected to decline by nearly 10% year over year from the very strong unit sales in calendar 2021,” Mehrotra told analysts. “This compares to an industry and customer forecast of roughly flat calendar-2022 PC unit sales at the start of this calendar year.” PCs are big consumers of DRAMs, and they are using more memory per system, especially Macs with Apple Inc.’s
AAPL,
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new M1 processor.

But markets are being impacted by weakness in consumer spending in China due to COVID lockdowns, the Russian-Ukraine war and rising inflation.

Also see: McConnell threatens to scuttle bill that includes $52 billion for U.S. chip makers

In addition, Mehrotra said demand for smartphones is also falling, and Micron projected smartphone-unit volume to decline by mid-single-digits year over year in calendar 2022, well below industry expectations earlier in the year of mid-single-digit percentage growth.

Micron said that, in reaction, it will be cutting some of its capital spending on wafer fab equipment, the equipment that semiconductor companies use to make wafers in fabrication facilities, for fiscal 2023.  “We now expect our fiscal 2023 wafer fab equipment capex to decline year-over-year,” Mehrotra said.

Enterprise and cloud-computing demand remains strong, Micron executives said, but they added that they are seeing some enterprise customers wanting to pare back some of their memory and storage inventory, due to shortages of other components and the macroeconomic environment.

Mehrortra even mentioned the word “downturn,” saying Micron would come out of the slowdown in a better position: “We are well-poised to emerge stronger on the other side of this downturn, so we are really executing well, working closely with our customers to understand the latest demand trends and various end-market segments, and adjusting our plans as necessary and as fast as we can.”

The company said it believes supply and demand will be back in balance — or that growth will resume — sometime in 2023, but executives were not more specific.

Piper/Sandler analyst Harsh Kumar said in a brief note after the call that “We suspect the bottom likely occurs in the February or May 2023 quarter.

“Another issue Micron cited was the elevated inventory levels at cloud customers, but management continues to see strong trends in this end-market. We feel this is something investors should watch in the near future,” he added.

Shares of Micron fell sharply after the earnings release hit the wires, but its shares came back, closing the after-hours session off just 1.4%, to $54.50. Some analysts had been predicting the possible end of the pandemic chip boom, and that Micron’s guidance might disappoint investors.

Indeed, the downturn may have already begun. The question now is, will it really turn around next year, and be a short-lived one?