Sputtering Memory Market Prompts Micron to Slash Workforce

Memory chipmaker Micron Technology will cut its global workforce by 15 percent over the next two years due to a massive slowdown in demand for memory chip technology, the Boise, Idaho-based company said Thursday.

Micron employs about 22,600 people, and said the cost of restructuring would be about US$60 million.

In late-day trading Thursday, Micron shares were up 0.8 percent to $3.94.

Too Many Chips

One Wall Street observer said Micron is making the right move by cutting costs.

“This is going to happen over two years,” Kevin Vassily, an equity analyst with Pacific Crest Securities, told the E-Commerce Times. “The impact will not be immediate, and I’m sure they reserve the right to re-hire if business gets better. I think they’re trying to send a signal that they’re taking costs seriously.”

At the root of the problem is a huge oversupply of memory chips, which has led to seven straight quarters of losses at Micron. Memory chips are used in a wide variety of consumer electronics devices, such as MP3 players, digital cameras, mobile phones, flash-memory cards and USB (universal serial bus) storage devices.

“The memory market is terrible,” Vassily said. “Through mid-2007, there was a massive investment in memory chip production. Since then, there’s a major oversupply. The industry also faces a demand slowdown that started this quarter. That’s exacerbating the oversupply problem.”

Focus on More Powerful Chips

The moves by Micron will cut production of memory chips by about 35,000 wafers per month. As a result, Micron will refocus its efforts on 300 millimeter wafers instead of 200 mm wafers. More silicon chips fit onto a 300 mm wafer than a 200 mm wafer, making the former a more powerful semiconductor component.

“They’re taking uncompetitive manufacturing assets offline because they stand no chance of making a profit using 200 mm wafer manufacturing facilities,” Vassily said. “Even if prices were to get better, the useful life of a 200 mm chip is done — it would require an expensive upgrade of facilities and that investment wouldn’t make sense.”

Micron has plenty of 300 mm capacity and even more room to expand that, Vassily said.

“And the cost structure of producing 300 mm wafers is very similar to that of 200 mm wafers, so the move makes sense,” he said.