(Bloomberg) — Micron Technology Inc., the U.S. memory chip maker, is cutting production to cope with a sharp drop in demand, the latest sign that the boom times in the semiconductors have quickly become a crisis.
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After forecasting quarterly sales that were nearly $2 billion below Wall Street estimates on Thursday, the company said it was taking big steps to curb supply. This includes slowing production at existing plants and reducing their budget for machinery.
Micron and other chipmakers had been soaring during the pandemic, when the work-from-home trend fueled demand for computers and other consumer technology. But fears of inflation and recession, plus a return to the office, have slowed purchases. This means that Micron’s customers are sitting on stockpiles of unused chips.
“As we look forward, macroeconomic uncertainty is high and visibility is low,” Chief Financial Officer Mark Murphy said on a conference call after the Boise, Idaho-based company released its quarterly results.
Aggressive moves by Micron to address the problem were enough to calm investors’ fears on Thursday. The stock initially fell more than 4% following its forecast, but soon recovered.
Still, Micron will need help from competitors to address the oversupply problem. Memory chips are unique in the semiconductor field in that they are built to industry standards, meaning products from rival companies are interchangeable. They are traded as commodities, with publicly available prices.
To restore the balance between supply and demand, South Korean competitors Samsung Electronics Co. and SK Hynix Inc. are showing signs of reducing production. The country’s semiconductor output fell for the first time in more than four years last month.
At the moment, Micron is experiencing a difficult year. It expects sales of about $4.25 billion in its fiscal first quarter, which ends in November. That compares with an average analyst estimate of $6 billion, according to data compiled by Bloomberg. Excluding certain items, profit will be about 4 cents a share, compared with an analyst forecast of 87 cents.
As part of its response to the downturn, Micron will cut capital spending by 30% in fiscal 2023, Chief Executive Sanjay Mehrotra said.
“Yes, we have a difficult market environment, but we are responding quickly with actions,” he said in an interview. “FY2023 is, of course, an unprecedented environment, but the long-term drivers are intact.”
Customers in various industries are reducing orders to reduce their chip inventories, he said, and the industry is experiencing a tough pricing environment. Micron expects conditions to improve in the second half of the fiscal year, which begins in the May quarter.
Micron’s memory chips store data and help process information in phones, computers and servers, making its outlook a key indicator of demand across much of the electronics industry. Although it has benefited from the spread of computing in everything from home devices to automobiles, it still relies heavily on computers to fuel revenue.
The stock had fallen 46% this year to the close, part of a rout for the semiconductor industry.
In the three months ended Sept. 1, Micron’s revenue fell about 20% to $6.64 billion, its first decline in more than two years. Net income was $1.49 billion, or $1.35 per share.
In August, the company said it would likely miss its own projections and that there would be significant declines in profitability. This added to a chorus of similar warnings from chip companies.
The U.S. company competes with Samsung and SK Hynix, as well as Japan’s Kioxia Holdings Corp., in a market that has historically been dangerous and unpredictable.
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