Micron’s Long Road Back Hits China Detour

Yet, such are the oddities of the memory market that the results and accompanying forecast actually qualified as good news, at least initially. The decline in the recent quarter was in line with the company’s prior forecast, and its projection for $3.9 billion in revenue for the current period was also in line with analysts’ expectations. That target would also reflect a less severe year-over-year sales decline than the prior two periods, leaving Micron Chief Executive Sanjay Mehrotra to proclaim that the industry “has passed the bottom” on the company’s earnings call. Micron shares rose 3% in after-hours trading following the results Wednesday. 

But the stock still slipped nearly 5% Thursday morning, as it has become more apparent that Micron’s road back is a long one. The company has garnered more than $4 billion in operating losses over just the past two quarters—more than it has ever lost on an annual basis in at least 16 years, according to FactSet. And Mehrotra said Wednesday that “more normalized levels of pricing” aren’t expected to return until sometime in calendar 2025. 

Then there is China. The government there has banned major Chinese companies from buying Micron’s memory, citing national security concerns. Companies in China account for about one-quarter of Micron’s revenue, and Mehrotra said Wednesday the company estimates that about half that amount is at risk from the ban. Micron is working to mitigate that impact; it announced plans earlier this month to invest $600 million in its production facilities in China, which could improve the company’s political standing there. 

But the ban shows Micron’s vulnerability in the growing geopolitical conflict that has engulfed the entire chip industry, and that conflict has proven to be anything but predictable. With another U.S. presidential election looming next year, tensions seem more likely to increase than to abate.

As such, Micron’s recovery out of the memory industry’s current trough will also follow a less predictable path. The company is wisely cutting production to help pricing and says it intends to maintain global market share even with the China ban, which implies that it plans to take some sales from rivals Samsung Electronics and SK Hynix as they fill Micron’s hole with Chinese customers. 

And then there is the new race among tech giants over generative artificial intelligence, which Tim Arcuri of UBS predicts will “ultimately drive disproportionate growth in memory,” since such capabilities rely on powerful computing chips that require large amounts of memory. That should prove good for Micron, especially as its core PC and smartphone markets start to stabilize later this year and next. But global politics is even more volatile than the memory business these days, and Micron’s playbook for that is much less established.

The $53 billion Chips Act seeks to end the U.S.’s reliance on foreign-made semiconductors, especially those used by the Pentagon. It’s the latest example of the federal government using its cash to remake an industry it sees as crucial to national security.

Write to Dan Gallagher at [email protected]