NAND memory chips, used in solid-state drives and smartphones for permanent data storage, make up about one-quarter of Micron's (MU -2.25%) revenue. There are five major players in the NAND market, plus some smaller manufacturers. Micron held a 12.3% share in the calendar third quarter, according to TrendForce, putting the company in fourth place.
We already knew that Micron's NAND business was struggling amid bloated industry inventories and light demand. When the company reported its fiscal fourth-quarter results, it disclosed that NAND sales volumes were down by a low-20s percentage from the previous quarter, and that NAND average selling prices were down a mid-to-high single percentage.
A recent report from TrendForce offered more precision: Micron's NAND revenue tumbled 26.2% sequentially in the calendar third quarter. The news gets worse: The fourth quarter isn't going to be any better, even with production cuts across the industry.
No holiday demand surge
Going into the fourth quarter, a normal year would see a demand boost from the holiday season. That's not happening this year. "...the usual demand surge in connection with the year-end holiday sales has failed to materialize this year," wrote TrendForce.
That's not too surprising. The PC industry is going through a severe correction after two years of booming sales. Global PC shipments were down nearly 20% year over year in the third quarter, and it's not just the consumer side that's suffering. HP's recent earnings report showed the first sign that commercial PC demand was starting to weaken as businesses pull back on spending.
The smartphone market is also struggling. Global smartphone shipments tumbled 9.7% year over year in the third quarter, with nearly every top vendor affected. The server NAND market has held up better than the PC and smartphone markets, but that too is now coming under pressure. TrendForce found that "...server demand eventually buckled in 3Q22 as result of enterprises cutting capital expenditure and undergoing a period of inventory correction."
With demand for memory chips coming in lower than expectations, the inventory situation could get even worse. And with pricing largely based on supply and demand, that means pricing is likely to weaken further.
A tough end of the year
TrendForce is now predicting that NAND contract prices will tumble another 20% to 25% in the fourth quarter, with the industry as a whole expected to see a 20% sequential decline in revenue. Some suppliers including Micron are cutting production, but those cuts aren't yet having a meaningful effect. It will likely take deep production cuts across the industry to bring supply back in line with demand, and it's unclear whether Micron and other manufacturers have done enough.
It doesn't look like the demand situation is going to improve anytime soon. Persistently high inflation and the potential for a recession next year are weighing on consumers and businesses alike. Consumers snapped up so many PCs, smartphones, and other gadgets during the pandemic that there's not much appetite for more. And enterprises, cloud computing companies, and other server chip customers are digesting their own inventories.
The pandemic was a boom period for memory chip manufacturers, but in commodity markets, booms are often followed by busts. This bust looks like it's going to be a bad one. Micron's revenue and profits are going to be under intense pressure until industry trends start to improve.
