Micron to cut 10% of workforce as demand for computer chips collapses

(Bloomberg) — Micron Technology Inc., the largest US memory chip maker, provided lackluster revenue outlook for the current period, indicating that the slump in demand for computer components will drag on and said it will reduce its workforce by about 10%. % in the next year.

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Sales will be about $3.8 billion in the fiscal second quarter, Micron said in a statement Wednesday. That compares with the average analyst estimate of $3.88 billion, according to data compiled by Bloomberg. The company forecast a loss of about 62 cents per share, excluding certain items, for the period ending in February, compared with a loss of 29 cents expected by analysts.

Semiconductor manufacturers are experiencing plummeting demand for their products less than a year after being unable to produce enough to fill orders. Consumers have shelved purchases of personal computers and smartphones due to rising inflation and an uncertain economy. The manufacturers of these devices, the main users of memory chips, are now stuck with unused inventories of components and are slowing orders for new inventory.

The industry is experiencing its worst supply-demand imbalance in 13 years, according to chief executive Sanjay Mehrotra. Inventory is expected to peak in the current period, then decline over the remainder of the year, he said. Customers will transition to healthier inventory levels by mid-2023 and the chipmaker’s revenue will improve in the second half of the year, Mehrotra said on a conference call after the results were released.

Micron is cutting the budget for new plant and equipment and now plans to spend $7 billion to $7.5 billion for the fiscal year, a reduction from a previous goal of a whopping $12 billion. The company is also slowing down the introduction of more advanced manufacturing techniques. Micron expects overall industry spending on new manufacturing to decline as well.

Unlike other parts of the chip industry, Micron products are built to industry standards, which means they can be replaced with those of its competitors. Since memory can be traded like a commodity, its manufacturers are exposed to more pronounced price swings.

Micron’s pledge to reduce output at its factories and slow expansion plans won’t ease the glut of available chips unless rivals, including Samsung Electronics Co. and SK Hynix Inc., follow suit. This step can help prop up prices, but comes with the penalty of running expensive plants at less than full capacity, which can weigh heavily on profitability.

It will be difficult to generate a profit in the memory chip business in the coming year, Mehrotra said. In addition to planned workforce reductions, the company has suspended share buybacks, is cutting executive salaries and will skip company-wide bonus payments, executives said on the call.

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

Shares of Micron fell about 1.5% after closing at $51.19 in New York. The stock is down 45% this year, a worse decline than most chip-related stocks. The Philadelphia Stock Exchange Semiconductor Index is down 33% in 2022.

The company warned last month that it was cutting production by about 20% “in response to market conditions.” Micron, headquartered in Boise, Idaho, had 48,000 employees as of Sept. 1, according to the documents.

(Updates with CEO comments in fourth paragraph. A previous release corrected the revenue figure in sixth paragraph.)

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