Daily Brief: Micron Admits That There Are Too Many Chips On The Dance Floor

Daily Brief: Micron Admits That There Are Too Many Chips On The Dance Floor

over 1 year ago3 mins

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Micron revealed a disappointing outlook for this quarter late last week.

What does this mean?

Micron – the biggest maker of memory chips in the US – saw its revenue climb 16% last quarter from the same time last year to an all-time high. But that was its most modest uptick in over a year, and the company – which admitted that demand was tailing off fast – gave a far worse-than-expected revenue outlook too. Shoppers, after all, are cutting down on the big-ticket technology that houses Micron’s semiconductors, leading the makers of the devices to scale back on their own orders.

Micron revenue
Source: The Wall Street Journal

So Micron is doing what every self-sacrificing young professional is doing in these overpriced times: it’s planning to cut spending on new plants. That way, it can slow down manufacturing and burn through existing stockpiles. The company even said it would start walking away from orders where the customer exploits the oversupply to negotiate big price cuts, which it hopes will minimize any impact on its profit.

Why should I care?

The bigger picture: South Korea is a warning.

You can see this situation playing out more widely too: data out last week showed that stockpiles of chips in South Korea – the world's biggest producer of memory chips – was 53% higher in May than the year before. The last time inventory grew this fast was in March 2018, and it preceded a drop-off in revenue growth across the entire industry.

South Korea chips

Zooming in: Boom or bust?

These are all the hallmarks of an industry slipping into a boom-and-bust cycle, where producers overproduce in the good times only to be left with a glut when demand drops off. But at least memory chips are essential to just about everything these days, which means that a chipmaking boom-and-bust should be far less severe than it would’ve been in the past. Micron certainly thinks so: it said it’s expecting a rebound in orders in the next year or so.

Keep reading for our next story...

Copper Dropped To Its Lowest Price Since Early Last Year

Copper image

The price of copper hit its lowest in around 18 months on Friday, in a grim sign for the global economy.

What does this mean?

Here’s our elevator pitch for why you should care about copper: it’s essential to everyday appliances, electric vehicles, construction, transportation, and infrastructure, and demand for the red metal is seen as a good way to gauge the health of the global economy. So somebody dial 911: the price of copper sank below $8,000 a ton on Friday – its lowest since the world was still in the grips of the pandemic in early 2021. It could slip even more if the US and Europe end up stumbling into a recession, with analysts speculating that the supply of copper will be 10% higher than demand in the next couple of years. And to think, it wasn’t so long ago that the world was struggling to get its hands on the stockpiles it needed…

Copper price

Why should I care?

The bigger picture: Do your thing, China.

Copper investors are pinning their hopes on China to at least partially fill the hole in demand, and they might be onto something. For one thing, data out late last week showed that the country’s manufacturing activity grew in June for the first time in four months. And for another, the government announced $45 billion worth of support measures on Friday to finance infrastructure projects and boost the economy.

China PMI

Zooming out: Europeans are in this for the long haul.

It’s not just copper either: an index tracking the prices of six “base metals” had its steepest quarterly drop since the 2008 financial crisis last quarter. That makes them a bit of an outlier among commodities, with energy prices having risen by a record 42% in Europe last month. That pushed inflation in the region up to a record 8.6%, which some economists think will only come down to around 7.5% by the end of the year if the European Central Bank sticks to its current rate-hiking plan.

Metal prices tumble
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