(Bloomberg) -- Micron Technology Inc. and Kioxia Holdings Corp., two of the world’s top memory chipmakers, are slashing production to cope with a steep plunge in demand.
Most Read from Bloomberg
Micron, the largest US maker of memory chips, reported downbeat earnings on Thursday and forecast quarterly sales that were nearly $2 billion below Wall Street estimates. Japan’s Kioxia, which supplies much of the world’s NAND storage for smartphones and servers, followed that on Friday by announcing that it’s reducing new production and will have its overall output 30% lower by December.
Global chipmakers had been riding high during the pandemic, when the work-from-home trend fueled demand for computers and other consumer technology. But inflation and recession fears -- plus a return to the office -- have put a damper on purchases. That’s left memory customers sitting on stockpiles of unused chips.
“Hard times are ahead for the industry, except for a few,” said Kazunori Ito, an analyst with Morningstar. “The deep cuts stem from weakening demand for computers and smartphones, and the wider semiconductor industry is likely to follow the trend.”
Micron’s aggressive moves to deal with the problem were enough to calm investors’ fears Thursday. The stock initially dropped more than 4% in the wake of its forecast, but soon rebounded. Closely-held Kioxia is planning an initial public offering, though hasn’t yet set a timeline.
“As we look ahead, macroeconomic uncertainty is high and visibility is low,” Micron Chief Financial Officer Mark Murphy said on a conference call after the Boise, Idaho-based company released its quarterly results.
Memory chips are unique in the semiconductor field in that they’re built to industry standards, meaning products from rival companies are interchangeable. They’re traded like commodities, with publicly available pricing.
To restore the balance between supply and demand, South Korean competitors Samsung Electronics Co. and SK Hynix Inc. are also showing signs of dialing back production. The country’s semiconductor output fell last month for the first time in more than four years and Hynix said it’s weighing big spending cuts. Samsung, the largest maker of memory chips, is scheduled to report earnings next week.
For now, Micron is in for a difficult year. It expects sales of about $4.25 billion in its fiscal first quarter, which ends in November. That compares with an average analyst estimate of $6 billion, according to data compiled by Bloomberg. Excluding certain items, profit will be about 4 cents a share, compared with a 87-cent prediction by analysts.
As part of its response to the slump, Micron will cut capital spending by 30% in its fiscal year 2023, Chief Executive Officer Sanjay Mehrotra said.
“Yes, we have a challenging market environment, but we’re responding rapidly with actions,” he said in an interview. “Fiscal 2023 is, of course, an unprecedented environment, but the long-term drivers are intact.”
Customers across various industries are cutting orders to pare their stockpiles of chips, he said, and the industry is experiencing a tough pricing environment. Micron expects conditions to improve in the second half of the fiscal year, which begins in the May quarter.
Micron and Kioxia’s memory chips store data and help process information in phones, PCs and servers, making the outlook from these companies a key indicator of demand for a large swath of the electronics industry. While they’ve benefited from the spread of computing into everything from household devices to automobiles, they remain heavily reliant on computers to fuel revenue.
Micron’s stock had fallen 46% this year through the close, part of a rout for the semiconductor industry.
In the three months ended Sept 1, Micron’s revenue shrank about 20% to $6.64 billion, its first decline in more than two years. Net income was $1.49 billion, or $1.35 a share.
(Updates with Kioxia production cut announcement)
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.