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Micron Says It Will Cut Output as Memory Chip Demand Stalls

Ian King

(Bloomberg) -- Micron Technology Inc., the largest U.S. maker of computer memory chips, said it’s cutting production in response to a slump in demand for its key products, taking quick action to ease the impact on revenue. Shares rose in extended trading.

The company also said it will reduce its investment in improving manufacturing by about $500 million.

Revenue in the current period will be about $4.8 billion, plus or minus $200 million, the Boise, Idaho-based company said Wednesday on a conference call. That compares with an average analyst prediction of $5.34 billion. The middle of that range would represent a sales decline of 38 percent. Micron projected profit of 85 cents a share, plus or minus 10 cents, in the period ending in May.

Key Insights

Profit, excluding certain items, was $1.71 a share in the fiscal second quarter. Revenue fell 21 percent to $5.84 billion in the period ended Feb. 28. Analysts, on average, projected profit of $1.65 a share on sales of $5.83 billion, according to data compiled by Bloomberg.That sales decline was the first in more than two years. Owners or large data centers such as Alphabet Inc.’s Google and Amazon.com Inc.’s AWS have slashed orders as they worked through stockpiles of unused components.Micron makes chips used as the main memory in computers and as storage in mobile devices. The company said it would idle 5 percent of production for DRAM and NAND memory chips because of weaker demand and reduce its planned capital expenses in the fiscal year by about $9 billion.Chief Executive Officer Sanjay Mehrotra has been telling investors that a much broader set of customers will help insulate the industry from the brutal downturns that have wiped out profitability in the past.

Market Reaction

Micron’s stock gained about 4.5 percent in extended trading following the announcement. It closed earlier at $40.13 in New York.Shares have rallied more than 26 percent along with other chip stocks as investors bought into industry executive’s reassurances that demand will improve in the second half of the year.

CEO Commentary

Micron expects that inventory reductions by its customers will continue until the middle of the year, Mehrotra said in an interview. The company is already seeing evidence that clients are working through stockpiles of unused parts, he said. In “the second half we will have an improved demand environment,” he said. “Despite very steep price declines, Micron reported very healthy profitability.”“Micron is a very different Micron now, in terms of closing the gap with competitors” on costs, he said.

Know More

Many analysts had cut their predictions for Micron’s earnings and outlook in the run up to its announcement citing worsening prices for computer memory.While Micron is suffering a rapid decline in revenue caused by falling orders, unlike previous downturns, those prices haven’t and won’t fall beneath the cost of production, BMO Capital Markets analyst Ambrish Srivastava wrote. To see the statement, click here.

(Updates with CEO comment section.)

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack

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