What happened
Shares of Micron Technology (MU 6.93%) were down as much as 5% on Tuesday before rebounding slightly to a 3.1% decline as of 10:48 AM EDT. While Micron's stock is known to be volatile, today's move was especially notable, as most of the technology sector was up for the day.
The reason behind the decline isn't hard to figure out; last night, Korean rival Samsung (SSNL.F +55.02%) released its fourth-quarter earnings. Despite the current severe chip downturn, Samsung basically said it would maintain its investment plans in 2023. Maintaining supply growth in this environment could prolong the memory downturn, and the news sent all memory stocks down -- Samsung and Micron included.
NASDAQ: MU
Key Data Points
So what
In the fourth quarter, Samsung's memory division -- the one that competes with Micron in DRAM and NAND flash -- saw a 38% decline in sales relative to the same quarter last year, with the memory and foundry divisions' profits nearly wiped out. In fact, it was the lowest profit for Samsung's memory division since 2009.
Yet despite the historic slump, Samsung management said it would maintain its capital investment at around the same level as last year. That's actually a different strategy from the one Micron and SK Hynix are employing, as those two other memory giants have each announced severe cost and production cuts this year and likely next year.
Now what
Basically, despite the memory market having relatively few competitors, Samsung is still investing through the cycle in a bid for more market share. This tactic has allowed Samsung to achieve the leading market share it has now in the memory space. However, since the industry is more consolidated now than it was in the past, that doesn't make as much sense now, as it will give Samsung a larger market share of a less profitable industry.
Still, Samsung may have hinted that its bit growth won't be quite as large as its guidance implies. For instance, Samsung said it would increase production through technology transition, not the addition of extra fabs, while it will temporarily take some production lines offline in the near term for maintenance and upgrades. In addition, management said an increased portion of investment would go toward research and development.
That implies that Samsung's spending will be aimed at technology progress, which tends to produce more bits more efficiently at lower cost over time, as opposed to brute-force capacity expansions. That could be why Micron is bouncing back somewhat from its early-day losses.
For what it's worth, Samsung also believes the tech device market may bounce back in the second half of this year as people refresh their phones and enterprises invest in AI and machine learning. It's a somewhat risky move, and if the memory market doesn't bounce back as hoped, Samsung's move could backfire -- at everyone's expense.
