uploads///B_Semiconductors_MU_DRAM and NAND industry outlook

Micron’s 2019 Memory Outlook Signals a Cyclical Downtrend

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Dec. 21 2018, Updated 2:45 p.m. ET

Micron lowers memory industry outlook

Previously, we learned that Micron Technology’s (MU) fiscal 2019 earnings have been hit by excess customer inventory. Adjusting its supply to adhere to demand, the company has announced cuts in capital spending.

Although Micron expects customer inventory to correct and demand to pick up by the second half of 2019, it has lowered its industry demand and supply outlook for the year.

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DRAM industry outlook

Micron lowered its DRAM (dynamic random-access memory) industry demand growth outlook for 2019 from ~20% to ~16%. The industry reduced its capital spending to keep supply in line with demand. On Micron’s fiscal 2019 first-quarter earnings call, CEO Sanjay Mehrotra stated that in light of new developments, the company was looking to lower its DRAM output growth from 20% to 15% for 2019. He added that the company’s efforts to reduce supply would see its DRAM bit shipments fall sequentially in the second quarter of fiscal 2019.

NAND outlook

The NAND (negative-AND) market has been hit by oversupply instead of customer inventory issues. The oversupply situation occurred as NAND suppliers, including Samsung (SSNLF), SK Hynix, and Intel (INTC), transitioned from planar to 3D NAND and ramped up the production of 64-layer 3D NAND.

Micron has lowered its NAND industry demand growth outlook from 40% to 35% for 2019 due to a PC central processing unit shortage at Intel and weak demand for high-end smartphones. Mehrotra has stated that to keep up with the demand environment, Micron is looking to lower its NAND output growth from 40% to 35% in 2019.

Micron’s capital spending reductions could follow capital spending reductions at Samsung and SK Hynix. Micron’s weak industry outlook and capital spending reductions signal that the memory industry downturn has likely begun. Although the company expects demand to resume in the second half, its actions show that it’s preparing for a longer down cycle.

Next, we’ll look at Micron’s fiscal 2019 capex.

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