To The Moon

Micron: A Bad 2022, A Dire 2023, A Positive 2024

Summary

• 2022 was bad for Micron, but 2023 will be worse as recovery won’t happen until 2024.
• Micron and other memory companies have substantial inventories to work through, causing memory prices to drop significantly.
• Smartphone and PC data point to the start of a recovery in 2023 that won’t move to positive YoY growth until 2024.
• Server shipment and cloud capex spend will be less impacted with positive albeit muted growth in 2023.
• This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive.Learn More »

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Since June 2022, the semiconductor memory market is in freefall, and $Micron Technology(MU)$ (NASDAQ:MU) stock is plummeting with its share price down 37.5% for the past one-year period. Clearly the cause has been a drop in demand for consumer electronic items likesmartphones and PCs. I’ve written extensively on this and my latest Seeking Alpha article of Nov. 14, 2022, entitled “Micron: Even The Best Technology Won't Help Until 2024.”

Further, in my Dec. 15, 2022, Seeking Alpha article entitled “Micron: Excessive Capex Spend Responsible For Plummeting Memory Market,” I demonstrated that while the dire economy has impacted demand, an underlying root cause is the excessive capex spend by memory companies in the prior year. Inventory oversupply at PC/smartphone customers is now intensifying in datacenters and industrial sectors of memory chips with only automotive chips secure so far.

In this article, Ipresent data illustrating the memory revenues and ASPs (average selling prices) continue to drop based on smartphone, PC, and server shipments and on cloud capex spend.

Dismal Consumer Outlook

Many analysts are touting an uptick in consumer related items, particularly PCs and Smartphones, in 2H 2023. I agree, but with an important proviso – 2022 was bad but 2023 will be worse as recovery won’t happen until 2024.

Chart 1 shows quarterly unit shipments for Smartphones (blue bar) and PCs (orange bar) from Q1 2022 to Q4 2024. Here we can see that shipments will reach a low in Q2 2023 and begin showing positive QoQ growth in Q3 2023. These data are according to our report entitled “Hot ICs: A Market Analysis of Artificial Intelligence (“AI”), 5G, Automotive, and Memory Chips.”

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Chart 1

Demand for these consumer products was so bad in 2022, extending into 2023, that a YoY recovery won’t happen until 2024, according to my analysis.

PC shipments dropped 15% YoY in 2022 and I expect another 10% drop in 2023 before increasing 8% in 2024. While unit shipments of PCs will be lackluster, the cheap prices of DRAMs and NAND due to chip oversupply will be a catalyst for smartphone vendors to add more memory to the smartphones.

Smartphone shipments dropped 12% YoY in 2022 and I expect another 3% drop in 2023 before increasing 5% in 2024. While unit shipments of smartphones will be lackluster, the cheap prices of DRAMs and NAND due to chip oversupply will be a catalyst for smartphone vendors to add more memory to the smartphones.

Chart 2 shows unit shipments of Servers between Q1 2022 an 4Q 2023. As with capex spend, unit shipments will decrease in Q1 2023 and recover in Q2 2023. Hewlett-Packard (HPE) is the dominant vendor of midrange enterprise servers followed by Dell (DELL). IBM (IBM) is the dominant vendor of high-end enterprise servers.

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Chart 2

Memory Metrics

Memory revenues are shown in Chart3. Memory revenues dropped 43.3% between July 2022 to January 2023, as well as a continued 12.1% drop between December 2022 and January 2023. Within the memory market, DRAMs dropped 46.0% during the 6-month period and another 10.9% between December and January.

DRAM revenue was greater than NAND revenues, and based on trendlines (dotted lines), DRAM revenue growth was greater than NAND over the period July 2019 and January 2023.

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Chart 3

Memory ASPs are shown in Chart 4. Memory ASPs dropped 34.8% between July 2022 to January 2023, as well as a continued 3.2% drop between December 2022 and January 2023. Within the memory market, DRAMs dropped 38.0% during the 6-month period and another 4.6% between December and January. NAND dropped 33.3% and increased 1.2%, respectively.

NAND ASPs were greater than DRAM ASPs, but based on trendlines (dotted lines), DRAM ASP growth was greater than NAND over the period July 2019 and January 2023.

The Information Network

Chart 4

Table 1 summarizes the change in metrics for Revenues and ASPs.

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Investor Takeaway

Driven by a mix of skyrocketing consumer demand followed by pandemic supply constraints, the traditionally cyclical memory industry moved along a new cycle that started in Q1 2021 and ended in Q2 2022. The downturn was amplified by a 40-year high inflation rate and recessionary fears that dampened demand primarily for consumer electronic products.

Memory prices are dropping due to a slowdown in shipments of consumer electronics products such as PCs and smartphones. As demand decreases memory chips aren’t sold, inventory builds up, and spot prices decrease.

I reiterate my thesis in my Nov. 14, 2022, Seeking Alpha article entitled “Micron: Even The Best Technology Won't Help Until 2024.”

Micron’s memory semiconductor inventories should peak in 1Q23 and decline after 2Q23 due to the supply cutbacks. As a result, industry conditions should improve from 3Q23. I also estimate a recovery in smartphones and demand of hyperscalers’ data center investment in 2H23. Overall demand for servers has decreased as customers reduced their purchasing budgets

Source: Seeking Alpha