Micron CEO Sanjay Mehrotra warns of potential semiconductor downturn

Micron CEO Sanjay Mehrotra warns of potential semiconductor downturn

The semiconductor boom of the past two years seems to be over.

Memory chip maker Micron Technology Inc. predicted a huge revenue shortfall from $1.5 billion to $2.3 billion as COVID 19 restrictions in China and slower demand for consumer products hurt the sale of memory chips.

Micron Chief Executive Sanjay Mehrotra told analysts that there are consumer-demand and inventory-related headwinds that affect the industry, and consequently our fiscal-Q 4 outlook.

The makers of dynamic random access memory DRAM and NAND chips reported third-quarter revenue of $8.64 billion, on target, with analysts projections of the company s chips, but the outlook and comments about the rest of the tech industry that uses the company's chips was the crux of most questions on the company s post-earnings conference call.

PC unit sales are expected to decline by nearly 10% over the year from the very strong unit sales in calendar 2021, Mehrotra told analysts. This compares to an industry and customer forecast of roughly flat calendar- 2022 PC unit sales at the beginning of the year. PCs are big consumers of DRAMs and they are using more memory per system, especially Macs with Apple Inc.'s AAPL, new M 1 processor.

The Russian-Ukraine war and rising inflation are some of the reasons why consumers are impacted by the weakness in China's consumer spending.

Also see: McConnell threatens to scuttle bill that includes $52 billion for U.S. chip makers.

Micron will be cutting some of its capital spending on wafer fab equipment, which is equipment used by semiconductor companies to make wafers in fabrication facilities, for fiscal 2023. We expect our equipment capex to decline year-over-year in fiscal 2023, Mehrotra said.

Micron executives said that enterprise customers are seeing some of their memory and storage inventory being slashed due to shortages of other components and the macroeconomic environment.

Moreortra even mentioned the word downturn, saying that Micron would come out of the slowdown in a better position: we are working closely with our customers to understand the latest demand trends and various end-market segments, and adjusting our plans as necessary and as fast as possible. The company said it believes supply and demand will be back in balance - or that growth will resume sometime in 2023, but executives were not more specific.

Piper Sandler analyst Harsh Kumar said in a brief note after the call that We suspect the bottom will occur in the February or May 2023 quarter.

Micron cited the elevated inventory levels at cloud customers, but management continues to see strong trends in this end-market. He added that investors should watch this as they feel this is something they should watch in the near future.

Micron's shares fell sharply after the earnings release hit the wires, but came back, closing the after-hours session off just 1.4%, to $54.50. Some analysts had been predicting the possible end of the Pandemic chip boom, and that Micron's guidance might disappoint investors.

The downturn may have begun. Is it going to be a short-lived one next year?