KeyBanc Capital Markets


This is an update from Mark Murphy (CFO) and Micron’s head of investor relations

Opening statements from Murphy:

• The softness they discussed in their Q3-22 call has spread. They are seeing adjustments to customer inventories now in cloud, data center, automotive, and industrial segments.
• This is causing demand and pricing weakness, so the company is now holding inventory rather than sell at prices they don’t think reflect fair value for their memory products.
• Revenues and earnings will come in below the low end of guidance given for Q4
• Free cash flow is expected to be negative in the first quarter of FY-22
• Calendar 2022 bit demand growth will be below the long-term trend. DRAM will be mid-to-high single digits percent growth. NAND will be low to mid-teens percent growth. Long term growth, they believe, is mid-to-high teens percent for DRAM and 28% for NAND.
• Micron is adjusting their supply in response. They will take capex down in FY-23 relative to what they will spend in FY-22.
• Reiterated they expect 30% through-cycle operating margin and free cash flow at 10% of revenue

Question and Answer:

• They are seeing further weakening in PCs and smartphones
• Visibility into customer inventories is mixed. CFO intimated the bottom of this cycle is two to three quarters away
• End demand is still strong in data center. The weakness in automotive and industrial is a recent development. Micron’s management doesn’t seem to understand if it is also and inventory correction or if end demand has declined.
• They declined to quantify how much they will reduce CapEx beyond saying it will be lower in FY-23 than in FY-22
• Part of the revenue shortfall for Q4-22 is because they are not taking some business because the pricing is too low
• The company believes they can hold inventory for multiple quarters and the cost of that inventory will be good enough to still be “good cost” inventory. They are in a game of chicken with customers who all know the industry is oversupplied and all the memory vendors are holding inventory and hoping the market will turn back in their favor.


The company has been surprised by how quickly weakness in demand for memory products has spread. They made major cuts in both DRAM and NAND bit demand growth for calendar 2022. DRAM demand will now grow only high single digits percent and NAND will grow low-to-mid teens. This is half what the company believes is the long-term rate. Management declining to quantify their capital expenditures forecast for FY-23, beyond saying it will be lower than FY-22, is surprising, given the full year results are only five weeks away. It is likely they don’t want to commit to a range of WFE investment until the last possible minute, so they don’t have to down-rev again if weakness continues to drop rapidly. The numbers I will watch most closely in their fourth quarter and full year results, due out around the end of September, are the rate of ASP declines, inventory growth, and their expected capital expenditures for the full year. Given how much they slashed bit demand growth for the full year, their revenues, margins, and profits will be pretty bad. This is an interesting setup to watch now; all the memory vendors are saying they will hold inventory rather than sell at the low end of the current prices being offered. Will they be able to hold out long enough, and reduce output quicky enough, for demand to surpass supply again and burn off the inventory they have built up.

-Smooth Hughes (long MU)

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