Micron CEO Cites ‘Significant Reduction’ in Industry ‘Bit Demand’

Micron Technology achieved “revenue records” for fiscal Q3 ended June 2 in most of its end-market enterprise segments, “despite supply chain challenges and COVID-19 control measures in China, which impacted our business on both the demand side and the supply side,” said CEO Sanjay Mehrotra on a quarterly earnings call Thursday. Micron’s expectations for calendar 2022 industry “bit demand” growth have “moderated since our last earnings call,” he said.

Near the end of fiscal Q3, Micron began seeing “a significant reduction in near-term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone,” said Mehrotra. “These consumer markets have been impacted by the weakness in consumer spending in China, the Russia-Ukraine war and rising inflation around the world.”

COVID-19 lockdowns in China “exacerbated supply chain challenges for some customers, and the macroeconomic environment is also creating some caution” among certain customer accounts, said Mehrotra. “Several customers, primarily in PC and smartphone, are adjusting their inventories, and we expect these adjustments to take place mostly in the second half of calendar 2022.”

There remain “consumer demand and inventory-related headwinds” that are affecting the tech industry, and “consequently our fiscal Q4 outlook,” said Mehrotra. But Micron remains confident about “the secular demand for memory and storage,” plus the “attractiveness” of its “market opportunity,” he said.

Despite “cost challenges” across the industry stemming from supply chain and inflationary “pressures,” Micron expects its cost reductions to outpace those of the industry this year, driven by “excellent productivity improvements in our fabs,” said Mehrotra. But the COVID-19 lockdowns in China “impacted our outsourced assembly and test subcontractors and led to some impact to fiscal Q3 results,” he said.

Rising electric vehicle adoption, plus “the ubiquitous connectivity” that 5G offers “are strong secular demand drivers, enabling the memory and storage industry to outpace the broader semiconductor industry,” said Mehrotra. Micron is driving a “portfolio mix shift” toward higher-growth and more stable markets, he said. Fiscal 2021’s 55%-45% revenue split in favor of the more mature mobile, PC and consumer markets is expected to shift, by fiscal 2025, to a 38%-62% split in favor of the higher-growth data center, auto, industrial, networking and graphics markets, he said.

Several market factors are combining to suppress consumer PC demand “in various geographies,” said Mehrotra. Micron’s forecast for calendar 2022 is for PC unit sales to decline nearly 10% year over year from their “very strong unit sales” in calendar 2021, he said. That compares with a forecast of “roughly flat” PC unit growth for 2022 at the start of the calendar year, he said. “We expect PC per unit memory and storage content growth trends to remain healthy in calendar 2022, driven by a mix shift toward enterprise PCs and the increasing content in new architectures such as Apple’s M1 Ultra platform.”

Micron’s fiscal Q3 mobile revenue declined slightly year over year, but grew sequentially from Q2 “due to strong customer partnerships and product execution,” said Mehrotra. “Smartphone unit sales expectations have declined meaningfully for calendar 2022,” he said. Micron is now projecting smartphone unit volume to decline by mid-single digits year over year, well below forecasts earlier in the year of mid-single-digit growth, he said.

Micron expects 5G unit sales to grow, reaching about 50% penetration of the total addressable market in smartphones this year, said Mehrotra. “The growth of 5G units will also drive higher DRAM and NAND content,” he said.