Micron joins the United States’ tech layoff parade

Micron Technology, the second largest American semiconductor maker, has announced plans to reduce its workforce by about 10% in response to the worst downturn in the semiconductor industry since 2009. Micron is among US tech companies – including Amazon, Cisco, Facebook, Microsoft and Twitter – that in total have laid off more than 120,000 employees this year. In the San Francisco Bay Area – Silicon Valley and environs – alone, more than 44,000 tech workers have lost their jobs since November 1, according to the San Francisco Chronicle. Merry Christmas! On December 21, Micron announced results for the first quarter of its fiscal year 2023, which ended on December 1. Revenue was down 38.4% from the previous quarter and down 46.8% year-on-year. As a result of the sharp decline in sales, the company dropped into the red, recording a net loss of $195 million compared with net profits of $1.5 billion the previous quarter and $2.5 billion a year earlier. CEO Sanjay Mehrotra said Micron’s fiscal first quarter revenue and earnings per share were “within guidance ranges despite challenging conditions during the quarter.” That means that the company’s official forecast had been accurate. Presumably their second quarter guidance is also on target: Revenues down another 7%, another net loss and a gross profit margin of only 7.5% (plus or minus 2.5%). That compares with gross margins of 21.9% last quarter and 47.0% in the first quarter of last fiscal year. Looking ahead “Micron’s strong technology, manufacturing and financial position put us on solid footing to navigate the near-term environment,” Mehrotra said, “and we are taking decisive actions to cut our supply and expenses. We expect improving customer inventories to enable higher revenue in the fiscal second half, and to deliver strong profitability once we get past this downturn.” Micron CEO Sanjay Mehrotra. Photo: Micron If that sounds like the proverbial American “soft landing,” then why are they planning to lay off so many people? The Form 8-K statement filed with the Securities and Exchange Commission (SEC) says they “expect to reduce our headcount by approximately 10% over calendar year 2023, through a combination of voluntary attrition and personnel reductions.” This is a serious restructuring plan to deal with “challenging industry conditions,” which may continue for quite some time. Micron can control its own costs and both it and its customers can reduce their inventories, but they cannot control final demand, which depends on the state of the economy. Whether or not sales will start to recover in the second half of this fiscal year remains to be seen. What can be said is that visibility drops off sharply more than one quarter ahead and the US-China trade dispute, looming recession in Europe and the impact of higher interest rates in the United States are not encouraging signs. In fact, it looks like CEO Mehrotra and CFO Mark Murphy are preparing for the possibility of a “hard landing,” which is the responsible thing to do. Micron plans to cut capital spending to $7.0 billion to $7.5 billion this fiscal year, a 37.5% to 41.7% reduction from $12.0 billion last fiscal year, with spending on production equipment dropping by about 50%. “We are now significantly reducing our fiscal 2024 capex from earlier plans to align with the supply-demand environment.” Mehrotra said. The company expects fiscal 2024 wafer fab equipment to fall from fiscal 2023 levels, “even as construction spending increases year on year.” In other words, even if revenues pick up after excess inventories have been eliminated, purchases of silicon wafer fabrication (semiconductor production) equipment are likely to decline both this fiscal year and next. Micron has not changed its plans to invest $40 billion in the construction of memory chip production facilities in the US by 2030. Last August, the company stated that: With the anticipated grants and credits made possible by the CHIPS and Science Act, this investment will enable the world’s most advanced memory manufacturing in America. Micron expects to begin production [at the new facilities] in the second half of the decade, ramping overall supply in line with industry demand trends. In the short run, however, the production schedule of the company’s new 1-beta DRAM has been slowed and the introduction of NAND flash memory beyond 232 layers has been delayed so as not to get ahead of market demand. In November, the company announced a 20% cut to wafer starts (silicon wafer inputs). Average selling prices have declined by more than 20% since last quarter. How bad could things get? In fiscal 2009, at the bottom of the last severe downturn, Micron reported a 43.4% decline in sales; a negative gross margin – minus 9.2%; and a net loss of $1.9 billion. As of Friday, December 23, Micron’s stock price was down 49% from its 52-week and all-time high, which was reached last January

Micron joins the United States’ tech layoff parade

Micron Technology, the second largest American semiconductor maker, has announced plans to reduce its workforce by about 10% in response to the worst downturn in the semiconductor industry since 2009. Micron is among US tech companies – including Amazon, Cisco, Facebook, Microsoft and Twitter – that in total have laid off more than 120,000 employees this year.

In the San Francisco Bay Area – Silicon Valley and environs – alone, more than 44,000 tech workers have lost their jobs since November 1, according to the San Francisco Chronicle. Merry Christmas!

On December 21, Micron announced results for the first quarter of its fiscal year 2023, which ended on December 1. Revenue was down 38.4% from the previous quarter and down 46.8% year-on-year. As a result of the sharp decline in sales, the company dropped into the red, recording a net loss of $195 million compared with net profits of $1.5 billion the previous quarter and $2.5 billion a year earlier.

CEO Sanjay Mehrotra said Micron’s fiscal first quarter revenue and earnings per share were “within guidance ranges despite challenging conditions during the quarter.” That means that the company’s official forecast had been accurate.

Presumably their second quarter guidance is also on target: Revenues down another 7%, another net loss and a gross profit margin of only 7.5% (plus or minus 2.5%). That compares with gross margins of 21.9% last quarter and 47.0% in the first quarter of last fiscal year.

Looking ahead

“Micron’s strong technology, manufacturing and financial position put us on solid footing to navigate the near-term environment,” Mehrotra said, “and we are taking decisive actions to cut our supply and expenses. We expect improving customer inventories to enable higher revenue in the fiscal second half, and to deliver strong profitability once we get past this downturn.”

Micron CEO Sanjay Mehrotra. Photo: Micron

If that sounds like the proverbial American “soft landing,” then why are they planning to lay off so many people?

The Form 8-K statement filed with the Securities and Exchange Commission (SEC) says they “expect to reduce our headcount by approximately 10% over calendar year 2023, through a combination of voluntary attrition and personnel reductions.”

This is a serious restructuring plan to deal with “challenging industry conditions,” which may continue for quite some time. Micron can control its own costs and both it and its customers can reduce their inventories, but they cannot control final demand, which depends on the state of the economy.

Whether or not sales will start to recover in the second half of this fiscal year remains to be seen. What can be said is that visibility drops off sharply more than one quarter ahead and the US-China trade dispute, looming recession in Europe and the impact of higher interest rates in the United States are not encouraging signs.

In fact, it looks like CEO Mehrotra and CFO Mark Murphy are preparing for the possibility of a “hard landing,” which is the responsible thing to do.

Micron plans to cut capital spending to $7.0 billion to $7.5 billion this fiscal year, a 37.5% to 41.7% reduction from $12.0 billion last fiscal year, with spending on production equipment dropping by about 50%.

“We are now significantly reducing our fiscal 2024 capex from earlier plans to align with the supply-demand environment.” Mehrotra said. The company expects fiscal 2024 wafer fab equipment to fall from fiscal 2023 levels, “even as construction spending increases year on year.”

In other words, even if revenues pick up after excess inventories have been eliminated, purchases of silicon wafer fabrication (semiconductor production) equipment are likely to decline both this fiscal year and next.

Micron has not changed its plans to invest $40 billion in the construction of memory chip production facilities in the US by 2030. Last August, the company stated that:

With the anticipated grants and credits made possible by the CHIPS and Science Act, this investment will enable the world’s most advanced memory manufacturing in America. Micron expects to begin production [at the new facilities] in the second half of the decade, ramping overall supply in line with industry demand trends.

In the short run, however, the production schedule of the company’s new 1-beta DRAM has been slowed and the introduction of NAND flash memory beyond 232 layers has been delayed so as not to get ahead of market demand. In November, the company announced a 20% cut to wafer starts (silicon wafer inputs). Average selling prices have declined by more than 20% since last quarter.

How bad could things get? In fiscal 2009, at the bottom of the last severe downturn, Micron reported a 43.4% decline in sales; a negative gross margin – minus 9.2%; and a net loss of $1.9 billion.

As of Friday, December 23, Micron’s stock price was down 49% from its 52-week and all-time high, which was reached last January. (US markets, closed Monday because Christmas came on a Sunday, reopen Tuesday, December 27.)

That price drop might suggest that the worst is behind us, and some stock market analysts rate Micron a hold or a buy, but history suggests otherwise.

After the dot.com bubble burst in 2000, Micron’s share price dropped by 90%. From its peak in 2006 through the sell-off in the Great Recession associated with the collapse of Lehman Brothers in 2008, it dropped by 85%. Note that both of those declines took more than two years. Recovery took longer, as can be seen from the charts below.

The charts also demonstrate why well-known contrarian investor Marc Faber’s market newsletter is called The Gloom, Boom and Doom Report and why one favorite metaphor for stock market timing in a downturn is to “catch a falling knife.”

In a recent interview with Wealthion, Faber noted that in an economy characterized by a long-term structural increase in interest rates, “You can have rising earnings … but stocks in real terms lose their value.”

Micron Technology (MU) Stock Price (US$, 1990 – 2022)

Micron Technology (MU) Stock Price (US$, 2006 – 2011)

Source: Yahoo Finance data, Asia Times

DRAM and NAND flash are the two primary categories of memory ICs (integrated circuits). Micron is the world’s 3rd largest maker of DRAM, ranking after Samsung Electronics and SK Hynix with about 25% of the market. It is the 4th largest maker of NAND flash memory, ranking after Samsung Electronics, SK Hynix and the Kioxia/Western Digital joint venture – with about 13% of the market.

Micron is also the world’s 4th largest integrated semiconductor device maker (IDM), ranking after Samsung Electronics, Intel and SK Hynix. An IDM both designs and makes its own integrated circuits or other semiconductor products. In contrast, IC design companies such as Qualcomm and Nvidia outsource production to IC foundries (contract manufacturers) such as TSMC.

Micron’s status as a leading memory IC maker and IDM makes it an important part of the effort to rebuild semiconductor production in the US. It is also an indicator of demand for semiconductors and semiconductor production equipment, and of economic activity in general. Its products are used in computing (PCs and data centers), telecommunication (smart phones), auto and industrial applications.

To reiterate, Micron’s investment plans target a full recovery with “the world’s most advanced memory manufacturing in America” in the second half of the decade. The timing of recovery is consistent with previous cycles. Competition with Samsung and SK Hynix will be intense. Chinese memory IC makers will have a hard time keeping up or catching up.

Micron’s second quarter results and update of market conditions should be announced in late March.

Follow this writer on Twitter: @ScottFo83517667