Micron’s plans to invest $40 billion in the U.S. later this decade while reducing capex during the near term makes sense, Wedbush Securities senior vice president Matthew Bryson said in an interview with EE Times.

On Aug. 9, the same day that Micron CEO Sanjay Mehrotra pledged the $40 billion investment on enactment of the U.S. CHIPS and Science Act, Micron chief financial officer Mark Murphy told investors the company, which is the world’s third-largest memory chipmaker, will cut spending on capital expansion next year.

“We see total capex being down year-over-year, fiscal 2023 versus fiscal 2022,” Murphy said at an investor event held by KeyBanc Capital Markets. “We’re responding to a market condition where supply needs to be adjusted. We need to work through this and figure out a way to right-size the capacity.”

Micron aims to invest $40 billion in the U.S. and hopes to win subsidies from the $52 billion package of incentives in what’s known as the CHIPS Act, targeting a return of semiconductor manufacturing to America while also restricting investment in China. “CHIPS” stands for “Creating Helpful Incentives to Produce Semiconductors,” but the act goes beyond computer components.

“The company announced today investment plans in the U.S. with the help of the CHIPS Act, and that’s to support what we think is durable DRAM growth,” Murphy said on Aug. 9. “That’s investment out to support DRAM demand in the back half of the decade. (We’re) dealing with the short-term markets worse than we thought it would be.”

Micron plans to cut 2023 capex from the $12 billion budgeted for its 2022 fiscal year, according to Murphy. He did not provide details on 2023 capex.

Shortages that began longer than two years ago are ending as the memory chip segment of the semiconductor industry swings to oversupply. It’s reasonable that Micron and every other memory vendor is reducing near-term capex plans, Wedbush Securities’ Bryson said.

“Building a new fab, and particularly one sited on a new campus, is a multi-year endeavor,” he said. “It makes sense that site planning for facilities that will be required in three to four years is happening now.”

“It’s very believable that even with reduced capex in FY/CY ’23, that the company will spend $70 billion or $80 billion plus in total by 2030 because DRAM won’t be in oversupply forever,” Bryson added. “Roughly half that spend might happen in the U.S. if Micron chose to locate a couple fabs in this geography.”

The decline in Micron’s capex will bottom depending on the magnitude of the current macroeconomic downturn and when Chinese consumption rebounds, according to Bryson.

“The drop in Chinese smartphone consumption has been the single largest headwind for memory and semiconductors in general,” he said.

Worldwide smartphone shipments declined 8.7% year-over-year in the second quarter of 2022, according to the International Data Corporation (IDC). This marks the fourth consecutive quarter of decline, IDC said.

DECLINING BIT GROWTH

Bit growth, a metric that memory chipmakers use to gauge demand, is falling, Murphy explained. That growth will lag the long-term trend with DRAM slowing to mid- to high- single digits while NAND drops to low to mid-teens.

“If you go back to 2018, we were seeing NAND bit growth was 40%,” Farhan Ahmad, VP of Investor Relations at Micron, said at the KeyBanc event. “Today, it’s 28%. DRAM at that time was 20%, and now it’s probably down to high teens.”

Ahmad didn’t comment on whether bit growth will return to historic levels.

Over the long term, demand for memory chips will push suppliers to boost output, Wedbush Securities’ Bryson said.

WIDENING DEMAND SLIDE

A slide in demand from makers of smartphones and personal computers has widened in recent weeks to companies making cars and datacenters, according to Micron.

“It’s a very recent development. It’s one of these things where early on, you’re trying to get a signal as to what’s the nature of the adjustment,” Murphy said. “But we’re seeing clear signs of weakness in those markets.”

It typically takes a few quarters for a market correction to “work out”, according to Murphy.

“Whether that’s a couple quarters from now or three quarters, it’s hard to say,” he added. “Our visibility with customers is mixed.”

Micron’s warning comes as the CHIPS Act was passed in part to reduce chip shortages that have forced companies like global automakers to shutter factories and lay off workers. The package of U.S. stimulus measures has persuaded Micron to invest in the U.S, according to Wedbush Securities’ Bryson.

“The CHIPS Act makes it such that the U.S. is now a competitive alternative as a venue to site a new fab,” he said. “Given some advantages to having a more diverse manufacturing base, particularly in the current geopolitical climate, there are arguably some other reasons to consider the U.S. (or Europe) as a venue.”

Most of Micron’s production is currently in Asian nations like Taiwan, Japan, and China, where manufacturing costs are lower.

Under pressure from increasing output, South Korean manufacturers like Samsung and SK Hynix have shown willingness to compromise on pricing, according to market watcher TrendForce.

Other suppliers have no choice but to follow suit as a price drop in consumer DRAM during the third quarter will widen from “the original estimate of 8-13% to 13-18%,” TrendForce said in an Aug. 10 report.

SWELLING INVENTORY

Micron plans to increase its inventory of memory chips in expectation of selling them for better prices sometime in the future. “We’re building inventories because the market conditions are weak,” Murphy said. “We’re working to get the best value we can for our premium products. We have been walking from business.”

It used to be riskier to hold inventory ten years ago, when production-cost declines were as much as 40% annually, according to Ahmad. “It was very difficult to hold inventories. it’s not a big issue for us holding inventory anymore.”

Samsung and SK Hynix of South Korea are Micron’s larger competitors. The three companies dominate the memory chip business, but face new competition from rivals in China, such as Yangtze Memory Technologies Co. (YMTC).

“They’ve made progress and they’ve got some engagements with customers now,” Murphy said. Apple recently placed orders with YMTC, according to press reports.

“YMTC is getting direct and a great deal of support from the (Chinese) government,” he added. “They’re a concern for the NAND space.”

By: DocMemory
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