Micron Double Decimates Production As Sales Stall

Micron Technology is making deeper production cuts for 2023 over concerns that the economy is getting worse, continuing a significant reversal from the high demand that made chip shortages the norm during the first two years of the COVID pandemic.

The American chip manufacturer said on Wednesday that it's reducing DRAM and NAND wafer production by roughly 20 percent compared to the fourth quarter of its fiscal 2022, which ended on September 1. This will impact all of Micron's manufacturing nodes and will result in a decline for DRAM supply and single-digital growth for NAND supply in 2023, according to the company.

Micron said it's also planning to reduce capital expenditures, going further than the 30 percent cut in investments for production in 2023 that it had announced in September.

The chip biz is taking the measures because a slowdown in demand for Micron's memory and storage chips have resulted in a stockpile of DRAM and NAND silicon that is simply too big.  

"Micron is taking bold and aggressive steps to reduce bit supply growth to limit the size of our inventory. We will continue to monitor industry conditions and make further adjustments as needed," said Micron CEO Sanjay Mehrotra in a statement.

Micron is making the production cuts as it expects to receive significant federal and state subsidies to build new chip manufacturing plants in the US over the next two decades. The company has pledged to spend $40 billion to build US fabs over the next decade, and it has committed $100 billion alone for a mega-fab in New York that will take more than 20 years to complete.

For the New York fab, Micron is expected to receive $5 billion in subsidies from the state, and it's hoping to receive federal subsidies made available through the CHIPS and Science Act for that project and others throughout the country.

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While the company is currently experiencing a course-correction after demand exceeded supply for much of the past two years, Micron believes these new fabs will be worth it in the long run. We better hope so, because that's a lot of government money that could go to waste otherwise.

"Despite the near-term cyclical challenges, we remain confident in the secular demand drivers for our markets, and in the long term, expect memory and storage revenue growth to outpace that of the rest of the semiconductor industry," Mehrotra said.

It's not a surprise that Micron is experiencing a major reversal in demand. We have been reporting on the weakening chip market for quite some time, and that has extended to DRAM and NAND flash memory that is used in system memory, SSDs, memory cards, and embedded applications.

This morning, Taiwanese research firm TrendForce said that revenue for the entire DRAM industry dropped 28.9 percent to $18.19 billion in the third quarter from the previous three-month period. This is the second largest decline to the one that happened during the 2008 recession, according to the firm.

TrendForce blamed this decline on lower demand for consumer electronics, but it said DRAM shipments for servers were also lower from the previous quarter, despite being relatively stable this year. ®