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Micron Reducing Production Amid 'Worse-Than-Expected CPU Shortages'

(Image credit: Charles Knowles/Shutterstock)

Micron released its Q2 2019 financial results yesterday. As reported by DigiTimes, Micron plans to cut its production of DRAM and NAND flash chips by 5 percent in 2019. The company also showed caution for Q3 sales.

"Our demand outlook for calendar 2019 has moderated, led by somewhat greater levels of customer inventory, weakening server demand at several enterprise OEM customers and worse-than-expected CPU shortages," Micron CEO and president Sanjay Mehrotra said in an earnings call. "We believe macroeconomic uncertainty is also contributing to hesitation in buying behavior at some customers. However, as we discussed on our last earnings call, we still expect DRAM bit shipments to begin increasing in our fiscal Q3, with demand growth strengthening in the second half of calendar 2019 as most customer inventories are likely to normalize by mid-year."

Micron, like Samsung before it, is reducing production as current demand fails to meet the high supply of memory and flash chips. The oversupply has led to aggressive price cutting for both DRAM and NAND flash chips in the past several quarters, and the prices are still expected to decline significantly this year in both markets.

Due to the excessive supply, Micron saw a drop of over 20 percent in its product average selling price (ASP) during the previous quarter that ended on February 28, 2019. DRAM and NAND pricing falling lower than expected also led to a decline in revenues of 26 percent sequentially and 21 percent year-over-year to US$5.8 billion for Q2.  

Micron’s DRAM ASP fell 21-23 percent quarter-on-quarter, while DRAM revenues decreased 30 percent on quarter and 28 percent compared to a year before. Its NAND flash revenues dropped 18 percent on quarter and 2 percent year-over-year. NAND flash ASPs declined 25 percent compared to the previous quarter, but bit shipments increased by "a high single-digit percentage," according to DigiTimes. 

Micron expects its revenues to fall another 17 percent in Q3 to $4.6-5 billion, with gross margin dropping to 37-40 percent from 50 percent in the prior quarter.

Mehrotra noted that despite the challenging market, Micron has continued to execute well, and he believes it will emerge stronger once the market improves.