Micron Says Spending Cuts Will Avert Price Collapse
The memory-chip industry will keep a lid on capital expenditures this year, helping avoid a repeat of the production glut that plagued the industry until 2010, Micron Technology Inc. Chief Executive Officer Steve Appleton said.
“There’s nothing going on that’s real crazy in terms of cap ex in the memory industry,” Appleton said today at a meeting with analysts in Scottsdale, Arizona.
Spending on new machinery used to make dynamic random access memory chips -- the main memory in computers -- will fall in 2011, Appleton predicted. That will reduce the risk of excess supply, even if orders slow. Meanwhile, demand remains strong for flash memory, which goes into phones and tablets such as Apple Inc.’s iPad, he said.
Micron, the only remaining U.S. producer of computer memory, is trying to stave off the imbalance suffered between 2007 and 2009. Chip prices fell below the cost of production, leading to billions of dollars in red ink at Micron. Similar losses at Taiwanese rivals have left them unwilling or unable to boost production again, Appleton said.
“You’re not going to see nearly as bad down cycles as you saw in the past,” said Tristan Gerra, an analyst at Robert W. Baird in San Francisco. “Eventually, the guys strong enough to survive thrive. The weak exit the market.”
Mired in Debt
Excluding South Korea’s Samsung Electronics Inc., the largest maker of memory chips, Micron’s Asian competitors don’t have enough cash to service their debts coming due in the next year, Appleton said. That means they can’t afford to spend money improving output, he said.
Memory-chip makers have historically struggled to match supply with demand. Building a new factory requires long-term planning and can cost as much as $4 billion, but demand can fluctuate in the space of weeks.
The plants also run 24 hours a day because it costs too much to halt a production process. That’s resulted in manufacturers selling chips for less than they cost to make.
Micron’s most recent quarter was the first time that sales of DRAM didn’t account for the majority of its revenue. A surge in demand for mobile phones and tablet computers is boosting orders for so-called Nand flash, a market served by fewer manufacturers. That’s helping make that sector less volatile than DRAM, said Alex Gauna, an analyst at JMP Securities LLC in San Francisco.
“There’s a better business opportunity with fewer competitors,” Gauna said. “The smartphone and the tablet are the perfect consumer devices -- they’re addictive and they wear out.”
Micron, based on Boise, Idaho, rose 1 cent to $11.32 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has rallied 41 percent this year, following a 24 percent drop in 2010.
Micron has reported an annual profit in only four of the past 10 years, beset by falling chip prices and competition with larger rivals. The company goes head-to-head with Samsung, the world’s second-largest chipmaker behind Intel Corp.
To contact the reporter on this story: Ian King in San Francisco at email@example.com.