Micron Technology, the largest American memory chip maker, plans to cut capital expenditures next year by more than 10 percent as customers try to get through the long-term storage and short-term memory chips they already have. The company said on Tuesday that it would cut $1.25 billion of capital expenses next year, bringing its total expenditures to $9 billion to $9.5 billion and feeding into fears that the semiconductor industry's boom is over.

Micron’s move to crop capital expenditures next year came as the company reported fiscal first quarter revenue of $7.9 billion, an increase of around 16 percent from the same quarter last year. Operating profit came out to $3.9 billion. Customers are slashing orders for chips used in smartphones, while shortages of Intel's Core processors have ramped down demand in personal computers, according to the company’s chief executive officer Sanjay Mehrotra.

Orders for chips used as main memory and storage in factories, automobiles and data centers have offset slowing sales of chips used in smartphones and personal computers. But the company’s broader customer base has struggled to protect it from fluctuations in supply and demand that have long threatened its profitability. Sales have started to slump and prices have softened over the last year, according to Micron.

The Boise, Idaho-based company projects revenues in the current quarter in the range of $5.7 billion to $6.3 billion, down from $7.35 billion in the second quarter last year when revenue surged from $4.65 billion the year before that and $2.93 billion the year before that. Average DRAM selling prices have fallen between 5 and 10 percent over the last quarter, while NAND prices have fallen between 10 and 15 percent over the same period, Micron said.

“Because of a lengthy period of rising DRAM prices, we believe some of our customers decided to carry higher than normal inventory levels and as DRAM supply caught up with demand, these customers are bringing down their inventory levels,” Mehrotra explained on an analyst conference call on Tuesday. He said that customers will reduce the inventory buildup to normal levels by the second half of next year.

To prevent conditions from getting any worse than they already are, the company is scaling back plans to expand chip production. Micron Technology said that it would try limiting DRAM output growth to around 15 percent, while it had previously projected production growth of around 20 percent in the current fiscal year. NAND output growth will be restricted to 35 percent over the next year to stop supply from surpassing demand.

Other companies have started reigning in capital expenditures. They are trying to calm concerns that they are adding too much manufacturing capacity too fast, endangering their profit margins. Samsung—more than three-fourths of the South Korean conglomerate’s profit is from the semiconductor business—recently reported that it had curtailed its capital budget almost 30 percent from the second to the third fiscal quarter of 2018.

Samsung, the largest manufacturer of memory chips, has put pressure on competitors to add capacity of their factory operations in recent years. The combined capital spending of the the largest memory chip manufacturers—Samsung, SK Hynix, and Micron Technology—is forecast to drop 17 percent from $45.4 billion this year to approximately $37.5 billion next year, according to market researcher IC Insights.

“We will continue to remain flexible with capital spending to respond to market conditions," said David Zinsner, Micron's chief financial officer, on Tuesday's conference call. "While near-term market conditions are challenging, we are taking appropriate steps to manage production and spending" - including tighter controls on employee headcount and administrative expenses - "in order to deliver healthy profitability."

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved