The prices of memory and flash memory declines too much that Micron cuts $1.25 billion expenditure to reduce supply
According to the Q1 financial report of 2019 released by Micron yesterday, the quarter’s revenue which is up to $7.91 billion increases by 16% compared with last year with a 58% gross margin. The net margin is $3.29 billion which increases by 23% compared with last year. Although overall performance is increasing, its pace slows down compared with last quarter. Due to big price cuts of NAND flash memory as well as high DRAM chip prices falling, the gross margin is affected. The prices of memory and flash memory will continue to fall in 2019. Micron plans to reduce $1.25 billion capital expenditure in order to decline memory capacity with general trend of price reduction.
Sanjay Mehrotra, the president and CEO of Micron, said Micron would reduce capacity of DRAM and NAND flash memory in order to fit current market in earnings call. According to data from Micron, DRAM capacity is predicted to increase by 15% in 2019, which is lower than predicted 20% rise, while NAND flash memory is predicted to increase by 35% which is lower than predicted growth rate between 35% and 40%.
The expenditure of Micron in 2019 is about $9.5 billion with a $1.25 billion reduction. It focuses on memory capacity in markets such as automobile, smart phone and data center, which are supposed to have a lower command by Micron.
The general prediction of memory market in next year is that it will continue to fall in the first half year. The prices of memory and flash memory will have a big cut predicted by Peter Lee, an analyst of Citigroup. NAND prices will decrease by 45% and DRAM prices will decrease by 30%. What’s more, price reduction will not hit the bottom until Q2 of next year, in other words, the price reduction of memory chips will last to Q2 of 2019.
The weak demand of smart phone is temporary, in addition, the market is predicted to warm up in the second half of 2019 by the Micron CEO, Sanjay Mehrotra.
Samsung and SK Hynix also plan to reduce capital expenditure in NAND flash memory and DRAM capacity in next year before Micron. Additionally, Samsung plans to add shares of foundry market to make up loss from memory chip reduction.