Micron Cuts Wafer Starts

November 16, 2022

Here is a brief announcement Micron made today:

Micron Technology, Inc. (Nasdaq: MU), today announced that in response to market conditions, the company is reducing DRAM and NAND wafer starts by approximately 20% versus fiscal fourth quarter 2022. These reductions will be made across all technology nodes where Micron has meaningful output. Micron is also working toward additional capex cuts. In calendar 2023, Micron now expects its year-on-year bit supply growth to be negative for DRAM, and in the single-digit percentage range for NAND.
Recently, the market outlook for calendar 2023 has weakened. In order to significantly improve total inventory in the supply chain, Micron believes that in calendar 2023, year-on-year DRAM bit supply will need to shrink and NAND bit supply growth will need to be significantly lower than previous estimates.
“Micron is taking bold and aggressive steps to reduce bit supply growth to limit the size of our inventory. We will continue to monitor industry conditions and make further adjustments as needed,” said Micron President and CEO Sanjay Mehrotra. “Despite the near-term cyclical challenges, we remain confident in the secular demand drivers for our markets, and in the long term, expect memory and storage revenue growth to outpace that of the rest of the semiconductor industry.”

This is a drastic move for Micron to make. It is rare for memory companies to reduce wafer starts in response to oversupply. The reason is, the high fixed costs of running fabs means that reducing starts raises cost per bit. In 25+ years of following this company, I have seen only a handful of times when Micron reduced wafer starts across the board. Besides some small trimming at the margin a couple of times, I don’t think meaningful wafer start reductions have happened since at least the Great Financial Crisis. And these are major reductions. 20% is huge. It will certainly help the oversupply situation faster than capital expenditure reductions would. Reduced supply will be seen in two to three months. Micron will take a large hit to their margins from higher costs, but they are already getting hammered by falling ASPs. The bigger risk here is permanent loss of DRAM market share. If Samsung doesn’t make cuts in CapEx similar to those that have been announced by Micron and Hynix, they will increase their market share when the market recovers in 2023 or 2024. Micron is making a big gamble here. The management team must be seeing a dire inventory and demand situation.

These cuts are good news for shareholders in this cycle. When demand does recover, it is easy to turn these wafers back on and bring supply up quickly. While they are running underloaded, their cycle time (speed at which wafers move through the fab) will drop sharply. This means yield learning rates for new technologies will increase and risk of excursions is lower. Even if Hynix and Samsung don’t also cut wafer starts, Micron’s reduction is taking 5% of the world’s DRAM bits off the market, so prices will bottom and recover faster. In the long term, it may cost Micron some market share, which in DRAM would be extremely hard to get back.

Link to press release

– Smooth Hughes (long MU)