The Old Testament: Q1 2023 Micron Earnings
We are seeing the ugly side of Semiconductor History. It's like the Old Testament.
It was supposed to be a new memory paradigm! There were fewer players, a rational hand on supply, and a few clear secular drivers for the industry. But Micron’s results yesterday were Old Testament, and when I say that, it reminded me of the 1990s, when the booms and busts of memory were more pronounced than they were the last decade. So, again, refer to my 1990s history overview of the Semiconductor cycle.
This memory cycle is starting to feel Old Testament. Samsung so far has committed to raising their Capex slightly next year. Meanwhile, Micron continues to insist on lowering capacity. This is from Samsung’s Q3 call:
Additionally, compared to last year, CapEx for the year is likely to increase slightly as we plan to preemptively invest in infrastructure and leading technologies to ensure readiness for the mid- to long-term demand and strengthen our technological competitiveness.
Amid SK and Micron cutting their capex by over 50%, Samsung seems insane. You can see Micron beg Samsung to get on the same page and fix the industry dynamics in their prepared remarks.
Due to the significant supply/demand mismatch entering calendar 2023, we expect that profitability will remain challenged throughout 2023. The timing of the recovery in profitability will be driven by the rate and pace at which supply and demand are brought into balance and inventories are normalized across the supply chain. We believe that negative year-on-year calendar 2023 industry DRAM bit supply growth and flattish year-on-year calendar 2023, industry NAND bit supply growth would accelerate this recovery.
This is effectively an open plea to Samsung. Again, maybe Samsung will get on board, but it’s essentially a black box if they do. And this time, because Samsung is unwilling to get on board, there’s no visibility as to when the recovery will happen. As a result, Samsung could protract the downturn.
All of this sounds like memory cycles of old, and I’m calling this note “Old Testament.” However, for Micron, it is a blast from the past, as there has only been one worse cycle for them in peak-to-trough quarterly revenue, and that’s the horrible 2000 cycle.
2000 is probably the best analogy to today, as a giant software lead bubble burst after rising rates and a glut of spending. Its trajectory is similar, but if it continues, we could be in for a bumpier ride. If there is another QoQ contraction, Micron will see negative gross margins. Let’s now turn to the numbers and specific callouts I found interesting.