[Peace&Chips] 'Semiconductor Barometer' US Micron's Earnings Shock... Cutting All Memory Investment and Employment

Memory Industry Leading Indicator 'Micron'
Declining Performance with Production Cuts and Investment Reduction
Micron CEO Also Mentions Possible Additional Measures

Samsung Electronics Takes Opposite Path to Industry Production Cuts
"Recovery of Investment Sentiment Difficult Without Strong Production Cuts"

Editor's NoteSemiconductors, known as the rice of modern industry. Although it's a term we hear every day, it’s often hard to explain. Peace & Chips will make the complex concepts and overall trends of the semiconductor industry easy to digest for you. Just bring your spoon.

[Asia Economy Reporter Kim Pyeonghwa] One of the major issues that caught attention in the semiconductor industry last week was the earnings announcement by the US-based Micron Technology. Micron, considered a leading indicator of performance in the memory semiconductor sector, not only reported an earnings shock but also announced layoffs, revealing the unprecedented severe crisis facing the semiconductor industry.

Micron is a representative American memory semiconductor company. Semiconductors are divided into memory and non-memory (system) semiconductors. In the memory semiconductor field, led by DRAM and NAND flash, Micron ranks 3rd in the global DRAM market and 5th in the NAND flash market. Particularly, in the global DRAM market dominated by the top three, Micron is chasing Samsung Electronics (1st) and SK Hynix (2nd).

Since Micron’s fiscal year starts in September, its earnings announcements come about a month earlier than other memory players. The earnings announced on the 21st (local time) belonged to the first quarter of fiscal year 2023 (September to November this year). The revenue for that quarter was $4.085 billion, down 46.86% compared to the same period last year. This was an earnings shock, especially since the revenue forecast was around $4.1 billion. To make matters worse, Micron posted an operating loss of $209 million, turning to a deficit.

Quarterly detailed performance table of Micron based on Generally Accepted Accounting Principles (GAAP) and Non-GAAP standards. It can be observed that the results for the first quarter of fiscal year 2023, corresponding to the domestic fourth quarter, have significantly decreased compared to past performance. / Source=Micron IR website

From PCs and mobiles to servers... No reliable support in the memory market

Micron’s deteriorating performance is linked to the severe downturn sweeping the entire semiconductor industry. Due to the global economic recession and inflation, demand has decreased across the board?not only in PCs and mobiles but also in servers. As a result, semiconductor inventories have surged, and prices have fallen rapidly, creating a vicious cycle throughout the memory industry.

Memory semiconductors are characterized by mass production of a few product types to reduce costs, which means supply tends to lead demand. If demand does not meet expectations, inventory of produced products accumulates, making the industry highly sensitive to economic fluctuations. Since the third quarter of this year, this effect has materialized in the worsening earnings of major memory players such as Micron, Samsung Electronics, and SK Hynix.

Micron keeps the door open for additional countermeasures

The semiconductor industry is paying close attention not only to Micron’s current earnings but also to its future plans. Micron announced it would tighten its belt to cope with the unprecedented semiconductor downturn. The company plans to reduce its workforce by 10% next year and has halted share buybacks and bonus payments. In a previous earnings announcement, it also stated it would reduce factory operating rates by 5% next year.

Investment will also be cut through the year after next. Micron invested $12 billion in fiscal year 2022, but for fiscal year 2023, it has forecasted capital expenditures (CAPEX) of $7 to $7.5 billion, lower than the previously planned $8 billion. It also indicated it would significantly reduce CAPEX in fiscal year 2024.

Especially, Sanjay Mehrotra, Micron’s CEO, emphasized, “Although we have taken aggressive measures due to the downturn, additional changes are also prepared,” and “We have the flexibility to exercise all means to control supply and manage costs.” This statement leaves open the possibility of further responses. It also suggests that other memory players may announce additional countermeasures such as production cuts and investment reductions.

Sales and market share of global DRAM market by company in Q3 this year. The sales of all market players decreased significantly compared to the previous quarter. / Source=TrendForce (market research firm)

Samsung without production cuts... "Short-term investment sentiment recovery difficult"

Currently, Samsung Electronics and SK Hynix are tightening their belts in response to the unprecedented market downturn. They are actively responding by promoting cost reductions across management, including reducing year-end bonuses and executive budgets. SK Hynix has already announced production cuts and CAPEX reduction plans in the third quarter of this year.

However, Samsung Electronics has stated it will not implement artificial production cuts. As the number one memory semiconductor player, Samsung plans to endure the downturn leveraging its superior cost competitiveness and scale compared to competitors. Samsung anticipates that when inventories are depleted and the market rebounds, the market share of players who did not cut production will likely increase.

The industry believes that if all memory players do not cut production, it will be difficult to balance market supply and demand, making it hard to bring forward the turnaround point. Kim Hyungtae, a researcher at Shinhan Investment Corp., commented in a report on Micron, “While strong supply control participation is urgently needed in the memory industry, Samsung Electronics has dismissed intentional supply reduction, so short-term investment sentiment recovery is expected to be difficult.”