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Micron Navigates Supply Chain Issues, More Than Triples Profit

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Micron Technology, the world’s third–largest memory chipmaker, avoided supply chain snags with nearly quadruple profits in its latest fiscal quarter, ended on Mar. 3. The chipmaker posted net income of $2.3 billion during its second quarter compared with $603 million in the same period a year earlier.

“Execution was outstanding with our industry–leading 1–alpha DRAM and 176–layer NAND technology node ramps delivering strong cost reductions,” Micron CEO Sanjay Mehrotra said on a Mar. 29 conference call with analysts. “Our portfolio transformation continues to gain momentum as we lead the industry on the DDR5 transition and grow our mix of NVMe data center SSDs.”

The company navigated through both Covid lockdowns in China as well as the Russian war in Ukraine; events that still threaten to constrain its supply chain.

In December 2021, a Covid lockdown impacted production at a Micron backend facility in Xi’an, China. The company has returned the Xi’an site back to normal output levels after the lockdown ended. Additional lockdowns in Asia may constrain the global supply chain, according to Micron. China has, at times, shut down entire cities and provinces as part of a zero–tolerance approach to Covid containment.

The global semiconductor supply chain is also under increased stress following Russia’s invasion of Ukraine. The region supplies noble gases and other critical minerals. Micron has diversified material supplies in recent years to maintain sufficient input levels.

“We currently do not expect any negative impact to our near–term production volumes because of the Russia–Ukraine war, but we do expect an increase in our costs as we secure supplies of certain raw materials that could be at risk,” Mehrotra said.

Micron is benefitting from strong demand for a variety of memory chips used in growing electronics applications. Memory and storage revenue has outpaced the rest of the semiconductor industry over the last two decades, and the company expects the trend to continue over the next decade with the growth of AI, 5G, and electric vehicle adoption.

Micron 7450 SSD with NVMe (Source: Micron Technology) (Click image to enlarge)

In 2021, data centers became the largest market for memory and storage, overtaking smartphones, according to Micron. The company expects data center demand growth to outpace the broader memory and storage market over the next decade.

Micron has introduced its 7450 SSD product, which the company claims is the industry’s first 176–layer vertically integrated data center NVMe SSD. The data center drives are in strong demand, according to the company.

Micron’s smartphone segment during the quarter grew slightly as the 5G transition continues. There is weakness in China’s market as the local economy slows and some customers tighten inventory management, according to the company.

Micron said growing new markets should drive strong demand.

Automotive and industrial applications will be the fastest–growing memory and storage markets over the next decade, according to the company. Nearly a tenth of Micron’s revenue comes from these markets, and the company said it is well positioned as a market share leader.

Samsung and SK Hynix are Micron’s larger competitors. The three companies dominate the memory chip business, but face new competition from rivals in China such as Yangtze Memory Technologies Co. (YMTC).

Apple validated YMTC’s 128–layer 3D NAND flash, with trial shipments from the Chinese chipmaker slated for May, according to a report from Taiwan’s DigiTimes. Apple needed to diversify NAND chip sources for its iPhone products after a contamination incident at a Kioxia fab in Japan crimped supplies, according to media reports.

Micron said NAND supplies dropped significantly after a competitor experienced a fab–contamination issue. Shortages of some devices are likely to continue until 2023, according to the company.

Micron has also halted expansion of wafer capacity during recent years to control cost and shift investment to improvements in existing cleanroom facilities.

“Micron has made investments over the course of last few years in our cleanrooms in the U.S., in Taiwan, in Singapore as well as Japan,” Mehrotra said. “Leveraging our globally well–diversified manufacturing footprint, these cleanroom expansions position us to implement the technology transitions in our production.”

The company announced last year that it plans to invest $150 billion over 10 years in manufacturing and R&D on a global basis. During 2025-2026, Micron expects to add new wafer capacity for DRAM to meet demand up to 2030.

As part of those investment plans, Micron may be in line for a chunk of the $52 billion in chipmaking subsidies from the U.S. federal government expected to win passage later this year. Mehrotra appeared with Intel CEO Pat Gelsinger at a Mar. 23 hearing of the U.S. Senate on incentives for investment in the domestic chipmaking industry.

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