Micron to Cut 10% of Workforce as Demand for Computer Chips Slumps

(Bloomberg) — Micron Technology Inc., the largest U.S. maker of memory chips, said its worst operating loss in more than a decade will make it difficult to return to profitability in 2023.

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The company on Wednesday announced cost-cutting measures, including a 10% layoff, aimed at helping it deal with a sharp drop in revenue. Micron also projected a decline in sales and a bigger loss than analysts expected in the current quarter.

Semiconductor manufacturers are in the midst of falling demand for their products less than a year after they failed to produce enough to meet orders. Consumers have put off buying personal computers and smartphones amid rising costs and an uncertain economy. The makers of these devices, the biggest buyers of memory chips, are holding back on production and slowing orders for new stock.

The industry is experiencing the worst imbalance between supply and demand in 13 years, said Micron CEO Sanjay Mehrotra. Stocks should peak this season, then decline, he said. Consumers will move to healthier product levels by mid-2023, and the chipmaker’s earnings will improve in the second half of the year, Mehrotra said.

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“Profitability will be tested during 2023 due to oversupply in the industry,” he said in an interview. “The rate and speed of the recovery in terms of profitability depends on how fast the supply is.”

Mehrotra said a unique confluence of circumstances – the war in Ukraine, inflation, Covid and supply disruptions – has pushed the memory chip industry to a repeat of the old cycle when prices fell and profits were wiped out. Micron responded aggressively to try to get past the crisis. One is that the recession is over, the industry will continue to grow profitably helped by the demand for artificial intelligence and automation in various industries, he said.

Micron, which has already announced production cuts, is cutting its budget for new plants and equipment, and expects to spend $7 billion to $7.5 billion in the fiscal year. , a reduction from the previous target of up to $12 billion. Companies are slowing introducing more advanced manufacturing techniques and predict that new manufacturing costs will fall across the industry.

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Unlike other parts of the chip sector, Micron’s products are built to industry standards, meaning they can be outclassed by their competitors. Because memory can be traded like a commodity, its manufacturers are exposed to more volatile price fluctuations.

Micron’s promise to reduce its factory output and slow expansion plans won’t ease the chip glut unless rivals, including Samsung Electronics Co., follow suit. and SK Hynix Inc.. This step can help support prices but comes with the penalty of operating an expensive plant at less than full capacity, something that can be burdensome to profit.

In addition to the planned staff reductions, the company is suspending share buybacks, cutting executive pay and skipping corporate payments, executives said in a conference call after the results were released.

Micron said second-quarter sales were about $3.8 billion. That compares with analysts’ estimates of $3.88 billion, according to data compiled by Bloomberg. The company estimated a loss of 62 cents per share, excluding certain items, for the period ended in February, compared with a loss of 29 cents expected by analysts. .

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In the three months ended Dec. 1, Micron’s revenue fell 47% to $4.09 billion. The company had a loss of 4 cents per share, excluding certain items. That compares to an estimated loss of 1 cent a share on $4.13 billion in sales.

Micron shares were down about 2% in extended trading after closing at $51.19 in New York. The stock is down 45% this year, the worst decline for most chip-related funds. The Philadelphia Stock Exchange Semiconductor Index is down 33% in 2022.

Last month the company warned that it would reduce production by about 20% “in response to market conditions.” Boise, Idaho-based Micron had 48,000 employees as of Sept. 1, according to the filing.

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