“Customers have worked down their inventory to normal levels”
Shares in memory specialist Micron tumbled overnight despite the company outperforming expectations, as the triple hangover of a trade spat with China, a slump in the smartphone market, and inventory stockpiling lingered.
Micron reported net income of $561 million for the final quarter of its fiscal 2019 (which it reports as ending August 29, 2019). That’s a desperate slump from the $4.3 billion it earned in the same quarter of 2019, but executives were upbeat.
CEO Sanjay Mehrotra said he was “encouraged by signs of improving industry demand”, despite “near-term macroeconomic and trade uncertainties”.
A particular highlight: triple-digit demand for consumer SSDs.
For the company’s data centre division, meanwhile, customer inventories for DRAM have reduced significantly, he noted, saying this was “driving solid sequential demand growth for server solutions in both cloud and enterprise markets”.
(The fall in inventories was helped by a power outage at a rival’s fab, the CEO added).
Micron Results: A Real Return in Growth?
Pressed by investors on whether signs of a return in demand were down to industry fundamentals or stockpiling amid ongoing tension between the US and China, he said: “I think certainly the pickup in business is being driven by the industry fundamentals.
“I would just like to remind you that in the first half of calendar 2019 because of the inventory that the customers had built up the demand to the producers was low, yet the end market demand for all applications continue to be robust.
“Now customers have worked down their inventory to normal levels, the demand is coming back to the producers and as a result, you saw in our fiscal Q4 results a strong growth in DRAM bit as well as NAND. Yes, there maybe some level of inventory build in China, but we do not think that that inventory build is anywhere close to the kind of inventory build that had gone on in the second half of last year.
The rise in 5G smartphones, and a pick up in demand from cloud customers should all prove a boost next year, the CEO said in the Micron results earning call.
Micron recently started volume shipments of a new “multi-chip package” (MCP) that uses 1Z LPDRAM; its latest generation 10nm manufacturing process.
The new chipset will bring “flagship-like performance and densities to mid and high-end smartphones” the firm boasted, saying the product is the smallest in the industry and that it had been the first firm to begin mass production of 16Gb DDR4 products using the new fabrication process, which is also being rolled out by Samsung.
“Development and mass production of the industry’s smallest feature size DRAM node are a testament to Micron’s world-class engineering and manufacturing capabilities, especially at a time when DRAM scaling is becoming extremely complex,” said Scott DeBoer, executive vice president of Technology Development for Micron Technology. “Being first to market strongly positions us to continue offering high-value solutions across a wide portfolio of end customer applications.”
Innovation in the industry continues to be capex-intensive: Micron’s capex was $9.11 billion in fiscal 2019.