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Key Takeaways
- Micron missed estimates for its first quarter of 2023 due to weak chip demand.
- The chip manufacturer also announced weaker guidance for the second quarter.
- Micron is one of many tech companies laying off workers due to a softening economy.
Micron recently reported lower-than-expected earnings results that included a supply-demand mismatch. It further warned of a much worse second quarter, as the discrepancy will take time to resolve.
To help alleviate some of the loss in revenue, Micron announced it would be laying off 10% of its workforce. Here is how Micron ended up in this position and how they are one of many tech companies dealing with the changes in the economy.
Micron announces layoffs
Semiconductor manufacturer Micron missed estimated earnings and revenue for its first fiscal quarter of 2023. It also forecasted a higher-than-expected loss per share for its current quarter.
In response to these difficulties, Micron announced it would eliminate roughly 10% of its employees and suspend the payment of bonuses throughout 2023. It expects to reduce its employee base through natural attrition and reduction of positions.
The company currently employs 48,000 people and is headquartered in Boise, ID.
Analysts estimated a loss of $0.02 per share, but the company reported an adjusted loss of $0.04 per share. It earned approximately $4.08 billion in revenues, a decrease from the $7.68 billion earned in the same period a year ago.
Sanjay Mehrotra, Micron’s CEO, stated, “In the last several months, we have seen a dramatic drop in demand.” Mehrotra expects the company to experience challenges to remain profitable in 2023.
It also announced a restructuring plan that included reduced investment in manufacturing capacity and various cost-cutting programs.
The drop in chip demand
Micron’s core business supplies memory and computer storage devices at the wholesale and retail levels. Computer manufacturers buy Micron’s products for use in their computers.
In addition, consumers can buy Micron products through the company’s retail division in the form of RAM and USB flash drives. During the pandemic, supply chain issues caused the price of memory to increase dramatically.
The simultaneous demand for graphic cards by Bitcoin miners and NVIDIA’s GeForce RTX 3080 among consumers also played a role in sky-high prices for memory-based products.
Early shutdowns during the pandemic resulted in consumers looking to upgrade their computers for work and play, resulting in more people building personal computers for home use. Micron and other memory chip makers struggled to keep up with chip production.
As pandemic pressures eased and inflation kicked in, chip demand decreased. Semiconductor manufacturing output returned to normal, but consumers either had what they needed in computing power or could not justify the expense of high-end graphics cards.
Meanwhile, graphic card manufacturers neglected the mid-range market in favor of the high-end and left buyers with little choice regarding reasonably priced and adequately powered options.
New Semiconductor Plants in the U.S.
In August 2022, the federal government passed the CHIPS and Science Act of 2022 to provide $52 billion in grants and subsidies for companies that manufacture computer chips.
This was done to help offset supply chain issues by moving more manufacturing of chips back to U.S. soil.
Micron responded by announcing it would spend at least $100 billion on constructing a computer chip factory in upstate New York over the next 20 years. Another manufacturing facility is planned for Boise, ID.
Multiple chip makers are planning new factories in the U.S., also known as fabs. They include GlobalFoundries, TSMC, Samsung Foundry, and Intel.
It’s estimated that these companies and Texas Instruments’ latest manufacturing facility will spend $200 billion on building new chip-making companies.
Currently, most computer chips are made in Taiwan despite the U.S. being the leading researcher and designer of chips. About 90% of the most advanced chips are manufactured in Taiwan.
Supply chain issues and geopolitical uncertainties between China and Taiwan have stimulated plans to bring chip manufacturing to the U.S. and reduce reliance on foreign manufacturing.
Furthermore, China is seeking dominance in chip manufacturing, causing the U.S. to invest heavily in building chip factories.
Other Tech Companies Laying Off Workers
Micron isn’t the only semiconductor manufacturer eliminating jobs after receiving billions in incentives to build new manufacturing plants in the U.S. Even though the two issues are separate, it’s still not a good look for profitable chip makers.
Intel started laying off workers in late 2022, NVIDIA introduced a hiring slowdown in mid-2022, and Qualcomm halted hiring in November 2022.
Other tech companies that have laid off workers and the estimated amount of layoffs include:
- TruSimple: 350 workers
- Pluralsight: 400 workers
- Plaid: 260 workers
- Motive: 237 workers
- Bizzabo: 220 workers
- Kraken: 1,100 workers
- DoorDash: 1,250 workers
- Carvana: 4,000 workers
- Cisco: 4,100 workers
- Amazon: 10,000 workers
- Coinbase: 1,100 workers
- Meta: 11,000 workers
- Twitter: 3,700 workers
- Airtable: 254 workers
An estimated 91,000 workers have been laid off because of job cuts in 2022. With the fear of recession looming in 2023, more companies might announce layoffs in January.
Bottom Line
Micron was put in a difficult situation during the pandemic. It brought an unprecedented need for computer chips that the industry was unprepared for. As a result, there was an inadequate supply of the needed equipment.
The response to increasing production was a smart one. However, no one imagined that demand would fall quickly, leaving many chip makers with a bloated inventory. Add in a weakening economy, and layoffs are just a natural outcome.
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Source: https://www.forbes.com/sites/qai/2023/01/01/tech-layoffs-micron-to-lay-off-10-of-staff-due-to-low-demand-for-chips/