Micron sales plummeted 53%. More staff will be laid off. Better days are ahead of us.


Technology stocks were higher after the memory chip company published financial results for the fiscal second quarter ended March 2, those numbers were about in line with expectations as a weak market for PCs and smartphones continued to weigh on the company’s results. Micron also said it will cut staff by about 15% as part of its cost-cutting program — down from a previous plan to cut heads by 10%.

But there are some promising signs for the memory chipmaker.

Sumit Sadana, Micron’s chief business officer, noted in an interview with Barrons that high customer inventories, which have weighed heavily on the company’s bottom line, are showing signs of improvement. He says there has been “major strides” in reducing inventory levels at PC vendors and also in improving inventory levels at smartphone makers.

He says there’s “still more work to be done” on inventories at data center companies, but storage conditions there should be healthier by the end of the calendar year. “It’s been a tough quarter, but we’re seeing good, positive signs going forward,” he said.

Micron was up 2.7% in premarket trading Wednesday to $60.85.

For the quarter, Micron (Ticker: MU) reported revenue of $3.69 billion, roughly in line with the Street consensus of $3.7 billion. Revenue fell 53% year over year and 10% from the fiscal first quarter.

On an adjusted basis, the company lost $1.91 for the quarter, worse than both the company’s forecast for a loss of 62 cents and Street’s consensus forecast for a loss of 86 cents. Micron said it took an inventory write-down of $1.34 billion, or $1.34 per share, during the quarter.

According to generally accepted accounting principles, the company lost $2.12 per share. Using adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization, the company lost $1.81 billion. Micron ended the quarter with $12.1 billion in cash and marketable securities.

Despite the ugly results, the company struck an upbeat tone in its press release and conference call remarks, hinting that better days are ahead.

“Micron delivered revenue within our guidance range in a challenging market environment for the fiscal second quarter,” said Sanjay Mehrotra, Micron’s CEO, in a statement. “Customer inventories are improving and we expect gradual improvements in the industry’s supply-demand balance. We remain confident in long-term demand and invest judiciously to keep our technology and product portfolio competitive.”

In comments prepared for the company’s conference call, Mehrotra said the memory and storage industry is poised for its worst downturn in 13 years, “with an exceptionally weak pricing environment.”

But he also believes that inventory days outstanding have peaked and that the company is on the verge of returning to sequential revenue growth. “Beyond this downturn, we expect a return to normalized growth and profitability in line with our long-term financial model,” he said.

For the fiscal third quarter, Micron sees revenue of $3.7 billion, more or less $200 million, in line with Street’s estimates. The company sees a non-GAAP gross margin of -21%, more or less 2.5 percentage points, with a loss of $1.58 per share on an adjusted basis, or $1.79 per share on GAAP.

Mehrotra claimed in his comments that Micron believes the company’s addressable market will hit a record in calendar year 2025, due in part to memory requirements to run the large language models required for artificial intelligence software. “We are only in the very early stages of widespread adoption of these AI technologies and potential exponential growth in their commercial use cases,” he said.

Micron’s CEO said he believes data center revenue bottomed last quarter. Micron expects PC unit shipments to decline by a mid-single-digit percentage in 2023, returning to PC unit shipment levels last seen before the outbreak of the Covid-19 pandemic. The company’s previous PC forecast called for a low- to mid-single-digit decline in units this year.

The company sees a slight decline in smartphone unit numbers in the 2023 calendar year; earlier forecasts had called for a stagnating to slightly increasing volume.

Micron said its auto segment’s sales rose 5% year over year in the most recent quarter, but noted that demand in the industrial market “continues to slow.”

Micron expects industry-wide bit demand growth of about 5% for DRAM and low-teens for NAND, well below the company’s long-term forecast of mid-teens for DRAM and low-20s for NAND. “We anticipate that improving customer bases will support sequential growth in bit demand for DRAM and NAND throughout the calendar year,” the company said. “China’s reopening is also a positive factor for bit demand in calendar year 2023.”

Micron now expects fiscal 2023 capital expenditures of $7 billion, down 40% year over year; that compares to a guidance range last quarter of $7 billion to $7.5 billion. The company expects a further reduction in wafer fab equipment shipments in 2024. The company also said it now expects to reduce headcount by 15% and extend its cuts from a previously expected 10% cut.

Write to Eric J. Savitz at eric.savitz@barrons.com

Source : www.barrons.com

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