Solid-state drives for permanent data storage and NAND memory chips in smartphones account for about a quarter micronof (mu -0.88%) income. There are five major players in the NAND market, plus some smaller manufacturers. According to TrendForce, Micron ranked fourth with a market share of 12.3% in the third quarter.
We already knew that Micron’s NAND business was struggling amid bloated industry inventories and weak demand. When the company reported its fiscal fourth-quarter results, it disclosed that NAND sales were down around 20% quarter-over-quarter, and NAND ASPs were down mid-to-high percentage points.
A recent TrendForce report provided more precise information: Micron’s NAND revenue fell 26.2% sequentially in the third quarter. The news got worse: The fourth quarter isn’t going to get better, even as the industry cuts production.
No surge in holiday demand
Going into the fourth quarter, the peak holiday season would normally boost demand. That won’t happen this year. “…the usual surge in demand associated with year-end holiday sales has failed to materialize this year,” TrendForce wrote.
This is not surprising. The PC industry is going through a serious correction after two years of buoyant sales. Worldwide PC shipments fell nearly 20% year-over-year in the third quarter, and it wasn’t just consumers who were affected. life valueThe company’s most recent earnings report showed the first signs that demand for business PCs is starting to weaken as businesses retrench spending.
The smartphone market is also struggling. Global smartphone shipments fell 9.7% year-on-year in the third quarter, with almost all top suppliers affected. The server NAND market performed better than the PC and smartphone markets, but is now also under pressure. TrendForce found that, “…server demand finally declined in 3Q22 as companies cut capex and went through a period of inventory adjustment.”
The inventory situation could get worse due to lower-than-expected demand for memory chips. Since pricing is largely based on supply and demand, this means pricing could weaken further.
tough end of the year
TrendForce is now predicting that NAND contract prices will drop another 20% to 25% in the fourth quarter, and industry-wide revenue is expected to decline by 20% quarter-on-quarter. Some suppliers, including Micron, are cutting production, but those cuts have yet to have a meaningful impact. The industry as a whole may need to cut production significantly to bring supply in line with demand, and it’s unclear whether Micron and other manufacturers are doing enough.
It doesn’t look like the demand situation will improve anytime soon. Persistently high inflation and the prospect of a recession next year are weighing on consumers and businesses. Consumers have snapped up so many PCs, smartphones and other gadgets during the pandemic that there’s little appetite for more. And enterprises, cloud computing companies and other server chip customers are digesting their own inventories.
The pandemic has been a boom time for memory chipmakers, but in commodity markets, booms are often followed by busts. This bust is going to look bad. Until industry trends start to improve, Micron’s revenue and margins will be under significant pressure.
Timothy Green has no positions in any of the stocks mentioned above. The Motley Fool has positions at and recommends HP. The Motley Fool has a disclosure policy.