MU • 10-K • FY 2023 • Neutral

Micron's $13.6B Revenue Drop Signals Memory Industry's Deepest Cyclical Downturn

October 06, 2023 • 1 min read

TL;DR

Micron experienced its most severe downturn with revenue plummeting 49.6% YoY to $15.5B in FY23, driven by unprecedented inventory corrections and weakened demand across all segments. Operating loss reached $5.4B as ASPs declined sharply, with DRAM revenue falling 47% and NAND dropping 54%. The company has responded with aggressive cost reduction initiatives, including a 15% workforce reduction and $1B capex cut. Despite near-term challenges, AI-driven demand and stabilizing inventory levels poi

Financial Performance Overview: Revenue collapsed 49.6% YoY to $15.5B with gross margins turning negative at -7.6%, down 4570bps YoY. Operating loss of $5.4B marks the worst performance in company history, driven by 47% DRAM and 54% NAND revenue declines. Inventory write-downs totaled $1.8B as ASPs fell ~50% across product lines. Cash from operations dropped 89% to $1.5B, though $9.3B cash position provides adequate liquidity through the downturn.
Strategic Initiatives and Operational Changes: Micron executed major restructuring with 15% workforce reduction saving $500M annually and $1B capex cut to $7.5B. R&D investment maintained at $3.1B (20% of revenue) focused on advanced node transitions and HBM3 development. New $15B Idaho fab construction continues with $6.5B in CHIPS Act funding secured. Strategic shift toward high-value segments like data center and automotive aims to improve margin profile long-term.
Market Position and Competitive Dynamics: Maintained #3 DRAM market position with 23% share despite Samsung and SK Hynix's aggressive pricing. Leading position in automotive (40% share) and industrial segments provides stability. Customer inventory corrections nearly complete in PC/mobile, while data center remains elevated. First-to-market with 232-layer NAND and 1β DRAM node transitions demonstrate technology leadership despite margin pressure.
Operational Efficiency and Profitability: Cost per bit reductions of 15% in DRAM and 25% in NAND partially offset ASP declines. Utilization rates dropped below 50% driving negative gross margins. Fixed cost deleveraging impacted profitability with -34.8% operating margin. New cost optimization program targeting $1B savings through FY24 via procurement, automation, and node transitions. Break-even utilization requires 70%+ rates expected by mid-2024.
Growth Catalysts and Material Risks: AI/ML demand driving HBM growth with 50% CAGR through 2025. Automotive/industrial segments growing 25%+ annually provide diversification. Key risks include continued pricing pressure, geopolitical tensions impacting China sales (25% of revenue), and execution challenges in node transitions. Recovery timeline depends on industry-wide supply discipline and demand normalization expected in 2024.

Revenue

$15.5B ( YoY) with DRAM $11.2B () and NAND $4.1B ()

↓ -49.6%

Rd Spend

$3.1B (flat YoY) at of revenue

↑ 20%

Net Income

-$5.8B vs +$8.7B YoY

Gross Margin

(-4570bps YoY)

↓ -7.6%

Free Cash Flow

-$2.1B vs +$3.2B YoY

Operating Margin

(-5980bps YoY)

↓ -34.8%

Growth Indicators

DRAM, NAND YoY

↑ +15%

Asp Changes ↓DRAM -50%, NAND -52% YoY

Utilization ↑<50% vs 90%+ YoY

Key Risks

Continued pricing pressure from competitors maintaining aggressive market share strategies
China exposure (25% revenue) vulnerable to geopolitical tensions
High fixed cost structure requires 70%+ utilization for profitability
Technology transition execution risk amid reduced investment capacity

Key Opportunities

AI/ML driving 50% CAGR in HBM through 2025
Automotive/industrial segments growing 25%+ annually
Advanced packaging capabilities supporting margin expansion
US manufacturing expansion via $6.5B CHIPS Act funding

Bottom Line

Micron's FY2023 performance represents a cyclical trough of historic proportion, though strategic positioning for eventual recovery remains intact. Technology leadership in advanced nodes combined with growing exposure to secular growth markets provides foundation for margin recovery when industry conditions normalize. Near-term focus on cost optimization while maintaining strategic investments balances current challenges with long-term opportunities. Key metrics to watch include customer inventory levels, competitor supply discipline, and AI-driven demand acceleration. The contrarian view suggests current downturn severity could drive more rational industry behavior going forward, potentially reducing cyclical volatility.