Micron this week announced drastic cost-cutting measures, which includes a 10% workforce reduction as well as further lowering of capital expenditures. As a result, the company will slowdown the ramp of new DRAM nodes, which will delay its introduction of 1γ (1-gamma) production nodes, that use extreme ultraviolet (EUV) lithography to 2025. Meanwhile, the company has begun sampling of 24Gb DDR5 memory devices for enterprise applications.
EUV Roll Out Delayed
Micron is the only large DRAM maker that does not use EUV lithography with its latest fabrication processes. The memory producer plans to use EUV for several layers in its 1γ manufacturing technology, which was set to be introduced sometime in 2024. Because Micron has to reduce spending on new equipment in fiscal years 2023 and 2024 as well as reduce DRAM bit shipments in the coming quarters, it will have to slowdown ramp up of DRAMs on its 1β and 1γ fabrication technologies.
The company's latest 1β (1-beta) manufacturing node — which increases bit density by 35% and improves power efficiency by 15% — solely relies on deep ultraviolet (DUV lithography). By contrast, Samsung and SK Hynix are already using EUV scanners for several layers in their 4th Generation 10nm-class technologies (1α, 1-alpha) and plan to increase their usage with 5th Generation 10nm-class DRAM nodes. But the company is delaying its 1β to reduce bit production shipments as well as cut down its CapEx, which is why it will delay its 1γ introduction too.
"Given our decision to slow the 1ß DRAM production ramp, we expect that our 1γ (1-gamma) introduction will now be in 2025," a statement by Micron reads. "Similarly, our next NAND node beyond 232-layer 3D NAND memory will be delayed to align to the new demand outlook and required supply growth."
The delay of a EUV-based production process is a big deal since one EUV layer replaces several DUV masks, thus reducing cycle times, improving yields, and reducing costs. Keeping in mind that both Samsung and SK Hynix will use EUV extensively in the coming years, they might have an edge over Micron in terms of costs.
24Gb DDR5 IC Sampling
Advanced process technologies are particularly useful for complex high-capacity DRAM devices, such as Micron's 24Gb DDR5 IC. The chip, which is being qualified by Micron's partners, is set to be made using Micron's proven 1α node.
Usage of 24Gb memory chips instead of 16Gb devices could increase memory module capacity by 50% without increasing the number of ICs per module. For mainstream and ultra-dense servers servers, that means 48GB, 96GB, 192GB or 384GB modules. Also, Micron could produce 24GB and 48GB DDR5 modules for client applications.
DDR5 ramp in servers will only begin when AMD and Intel start to roll out their next-generation EPYC and Xeon Scalable processors with DDR5 support. Meanwhile, Micron expects server DDR5 bit shipments to crossover with DDR4 in mid-calendar 2024.
As noted, one of the reasons behind the 1β and 1γ delays are CapEx cuts in fiscal 2023 (ends in September, 2023) and 2024 (ends in September, 2024). Micron cut its FY 2023 CapEx to a range between $7.0 to $7.5 billion, that's down from the $8 billion target the company set several months ago and from $12 billion in FY 2022 (i.e., the CapEx is cut by approximately 40%). The company intends to reduce spending on wafer fab equipment (WFE) by 50% year on year, but construction spending will increase as the company is building up its new fab in Idaho. WFE spending will also be down in FY 2024 compared to what Micron originally planned.
Lay Offs Coming
Since the company expects meagre demand growth for both types of memory it produces — 10% in DRAM and around 20% in NAND — it needs to reduce its operating expenses too. As a result, it plans to reduce headcount by 10% throughout 2023 'through a combination of voluntary attrition and personnel reductions.'
"For both years, demand in DRAM and NAND is well below historical trends and future expectations of growth, largely due to reductions in end demand in most markets, high inventories at customers, the impact of the macroeconomic environment, and the regional factors in Europe and China," Micron said in its statement.
Balancing Supply and Demand
While the output and cost cutting measures Micron has introduced look drastic, the company believes it needs to balance supply with demand as its profitability and long-term prosperity depends on it.
"The industry remains in an oversupply situation, but customers are depleting inventories, and we expect them to be in a better position by the second quarter of the calendar year," said Mark Murphy, chief financial officer of Micron (via SeekingAlpha). "But profit is going to be challenged through the year, and that will challenge gross margins."
"The rate and pace of the recovery in terms of profitability depends on how fast supply is brought into line," Sanjay Mehrotra, chief exec of Micron, told Bloomberg.