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Micron Technology Inc. must supply more memory chips in the current semiconductor shortage, but a decision in 2019 to cut production during a downturn could cost it money now.
Earlier Wednesday, Micron MU,
reported better-than-expected results for the second fiscal quarter, amid a global chip shortage. Several analysts on the company’s conference call questioned its capital spending plans.
“When I look at your annual investments versus what you’ve spent so far, you’re going to be down over 40% in the second half of the year,” said John Pitzer, analyst at Credit Suisse. “Why not get a little more aggressive on the capex?”
Sunjay Mehrotra, President and CEO of Micron, defended the company’s plans to spend $ 9 billion in fiscal 2021, which he said was close to the highest level of capital spending of Micron’s story.
“We want to make sure we manage it with care,” Mehrotra said. “Our goal is that in the longer term, in terms of supply growth, the CAGR [compounded annual growth rate], to be aligned with the growth in demand of the CAGR industry, and we have taken some cautious decisions in recent years in terms of capex investment.
But now it looks like the company may be buying a new plant, via a possible acquisition, just after recently deciding to shut down its XPoint 3D memory facility in Utah. Micron has had discussions with several potential buyers of this fab, and it appears to have some use for funds.
According to the Wall Street Journal, Micron is interested in the potential purchase of Japanese NAND memory company Kioxia, and could end up in a bidding war with Western Digital Corp. WDC,
for the company. The company is estimated to be worth around $ 30 billion.
This could be a big change for the last US memory chip maker, which slowed chip production in early 2019 amid a downturn. In its March call with analysts that year, Micron executives spoke of slowing the production of dynamic random access memory (DRAM) chips by about 5%, amid a 28% drop in demand, as well as price reductions.
Micron’s dilemma shows how difficult it is for semiconductor companies that choose to continue manufacturing their own chips in multi-billion dollar manufacturing plants. When demand arises, factories are idle or slowed down to produce fewer chips, but the cost of running them remains the same.
The need to build, add or purchase more capacity somehow in the midst of an industrial shortage, when it will take more than a year for a new plant to be operational once expensive key equipment arrives, is a bad position that no company wants to be in. Intel Corp. INTC,
which plans to build more factories in the United States, and possibly Europe, with the goal of becoming a manufacturer for other companies besides itself, is likely monitoring Micron’s situation closely.
Investors, however, appeared to react well to Micron’s comments about its capital spending plans, and particularly strong demand from the sector, pushing its shares up 4% after office hours. If the company ends up paying too much for another memory chip maker to increase capacity, that notion of discipline may quickly disappear.
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