Micron Grapples with Business Hurdles as AI Server Demand Skyrockets

by | Aug 30, 2023

Micron, a leading memory chip manufacturer, is facing a decline in its business due to high demand for AI servers. The company recently announced a 40% cut in capital spending plans for fiscal 2023, which has surprised the industry. Micron’s revenue has experienced a significant 57% drop in the fiscal third quarter. The demand for Micron’s specialty, dynamic random access memory (DRAM) and NAND chips, has fallen short of supply, resulting in lower selling prices for both.

Micron also faces challenges from a ban imposed by the Cyberspace Administration of China, which prevents domestic infrastructure operators from buying Micron’s chips. This ban is expected to affect almost half of Micron’s revenue from Chinese companies. Additionally, wafer starts for both DRAM and NAND chips have been reduced by about 30%, and Micron predicts this reduced rate will continue until 2024.

Despite these setbacks, Micron has some hope. The company has started sampling its own HBM3 (High-Bandwidth Memory) chips, which offer a 50% improvement in bandwidth. Mass production of these chips will begin in early 2024, and Micron expects significant revenue from HBM3 chips in fiscal 2024. This aligns with industry analysts who project a recovery in the DRAM market driven by demand for HBM3 and DDR5 memory.

Interestingly, the demand for AI servers is rapidly increasing, with the chairman of Foxconn predicting the AI server market to reach $150 billion by 2027. AI servers require much more DRAM and NAND content compared to traditional servers. NVIDIA, the market leader in AI servers, plans to triple its production of AI-focused GPUs in 2024 to meet the growing demand.

While Micron faces immediate challenges, the long-term prospects for the memory chip industry, especially in the AI server market, look promising. Micron’s investment in HBM3 chips positions the company well for the expected growth in this sector. As wafer starts recover and demand catches up with supply, Micron could experience a business revival.

To mitigate the impact of the downturn, Micron has implemented cost-cutting measures, including production cuts and reduced capital spending. These initiatives aim to align the company’s operations with the current market conditions and improve profitability. However, the duration of Micron’s struggle remains uncertain as the industry awaits a significant rebound.

As the memory chip landscape evolves, Micron’s ability to adapt and capitalize on emerging technologies and market demands will be crucial for its long-term success. The company’s decision to invest in HBM3 chips demonstrates its commitment to innovation and staying ahead of the industry. With the projected growth in the AI server market and the anticipated recovery in the DRAM market, Micron has an opportunity to regain its position as a key player in the memory chip industry.

In summary, Micron’s reduced capital spending plans and business decline pose significant challenges. However, with the increasing demand for AI servers, particularly those requiring high-capacity DRAM and NAND chips, there is potential for Micron to recover. The upcoming mass production of HBM3 chips and the projected recovery in the DRAM market offer hope for the company’s future success. As the industry evolves, Micron must continue to innovate and adapt to capitalize on emerging opportunities and secure its position in the competitive memory chip market.