03/02/23
Panel interview with Micron CFO Mark Murphy and VP of Operations Manish Bhatia
Opening Comments
- No quantitative guidance for their fiscal second quarter, the last day of which is today (March 2nd). Customer inventories are improving. Murphy cited mobile as one segment of notable improvement and called out cloud as an area of weakness. This is noteworthy as the first comment I’ve heard from Micron that a consumer-facing segment is improving. Mobile was the second segment to enter the downturn (PC was first) and cloud/data center was the last.
- While they expect pricing to improve throughout 2023, pricing remains soft. Their margins in the third fiscal quarter (March to May) will be worse than they previously expected. That means the downturn is lasting longer than they thought it would during their December call.
- They may have a material inventory write-down in the second fiscal quarter.
- The memory industry still has significant supply demand mismatch (oversupply). Their DRAM supply will contract in 2023.
- Company headcount is expected to be down 15% by the end of calendar 2023. This is an increase from the 10% they forecasted during their December earnings call. Increasing their headcount reduction by 50% within one quarter is a major change and doesn’t indicate they are managing layoffs well.
Question and Answer
- They believe the overall DRAM industry needs negative bit growth in 2023 to return to normal inventory levels. NAND will need “flattish” bit growth to reach healthy inventory.
- Reiterated Micron will have negative DRAM bit growth in 2023 and slightly up NAND bit growth in the year.
- Customer inventories are still elevated across the board. Micron’s inventories are “very high,” with NAND inventories are higher than DRAM. The company believes they will exit 2023 with inventory in excess of 150 days, with normal level being 100 days. They didn’t specify fiscal or calendar year.
- Third quarter revenue will be flat to down relative to the second quarter.
- They are seeing some positive data points, but market is still bad. The company does believe volume will increase as the year goes on.
- Declined to quantify what they expect to get from the CHIPS Act.
- The wafers that will come out of the planned Boise, ID and Syracuse, NY production fabs are to meet demand in the second half of the 2020s decade.
- Their 1-alpha DRAM node was a 40% increase in bits per wafer. 1-beta is a further 35% improvement in bits per wafer. EUV will be introduced on their 1-gamma node. The 1-gamma node will be introduced into manufacturing in 2025. They now have an EUV tool in their Taiwan manufacturing fab. Bhatia was over-the-top with how well their advanced nodes are going. They probably want to drive home the point that Micron continues to lead in process technology and is executing to keep that lead. It was noticeable how overstated he was on this topic.
- The ramp of 232-layer NAND has been slowed because of the weakness in the market. 176-layer will be their main runner node this year.
- No comment on the details of the likely inventory write-down in the current quarter.
- The crossover from DDR4 to DDR5 in the overall DRAM market will be in calendar 2024.
- The 1-gamma node will be manufactured in Taiwan, not in Japan.
- They believe PC content of both DRAM and NAND will increase in 2023 even as PC units decline, because of more memory and storage per box.
Summary
The memory market has continued to deteriorate, even faster than the company foresaw in December. Micron’s stock price dropped at the open on Thursday of this week because of this news. The company said there is likely an inventory write-down to be had in the quarter they will announce at the end of March. That means this was a pre-announcement for a terrible quarter. I think the chance of an inventory write-down is >99% for the second fiscal quarter. The executives emphasized multiple times how good their position is on process technology and how good they feel about their decision to introduce EUV lithography later than either Samsung or Hynix. I think Micron executives continue to highlight their leadership position in process technology because it is one of the few areas where they are the leader among the three DRAM companies. Samsung is more than twice their size and Hynix is substantially bigger. Both Korean companies also have better cost per bit, because more of their wafers are on advanced technology compared to Micron. The larger revenue base of both Korean competitors also lets them fund more operating expenses; hence they have broader product portfolios than Micron. But process technology is key in semiconductors, and this is a major advantage for Micron. The market is terrible, yes. That has been priced into the stock for nine months. The question at this point in the cycle is always when it will turn up. Historically, the worse a downturn is, the better the subsequent upturn is. If this is the case with this cycle, the coming upturn should be quite good for Micron. The likelihood of a recession in the second half of 2023 are low enough that I think the recovery will happen for memory this year. If this cycle follows the historical trend, the bottom will be reached in the June to August period. A recession pushes that out because it suppresses demand. I am looking for this quarter to be bad and for Micron’s guidance for the June quarter to be worse.