SINGAPORE (Apr 30): Nasdaq-listed Micron Technology — one of the leading global semiconductor companies which has invested heavily in Singapore — says it is business as usual for now even as entire economies and companies suffer from the fallout of the Covid-19 pandemic.
In an interview with The Edge Singapore on April 21, Micron’s executive vice-president of global operations Manish Bhatia and corporate vice president and Singapore country manager Chen Kok Sing say its performance targets for 3QFY2020 ending May remain unchanged.
“We’re going to be trying to continue to maintain the continuity of our operations both for our customers’ benefit, and for the company to be able to continue to ship products against our demand,” says Bhatia.
When the company reported its results for 2QFY2020 ended Feb 27 on March 25, it was optimistic that it had hit the cyclical bottom of its financial performance. From a diluted EPS of US$0.45 ($0.64) for 2QFY2020, Micron expects to improve to US$0.55 for 3QFY2020 but with a possible variance of US$0.15 either way. Gross margin is seen to hit 31% for 3QFY2020, an improvement from the 29.1% achieved for 2QFY2020. Revenue for 3QFY2020 is likely to be between US$4.6 billion and US$5.2 billion.
Bhatia says the relatively wide revenue guidance range is due to uncertainties in both demand and supply situation as well as conditions specific to individual markets. But, as at April 21, the company is sticking to the guidance, even with the virus outbreak worsening in the past month for the US. “We are hopeful that the second quarter would still be the trough quarter for us,” he adds.
Beyond this period however, Bhatia would rather err on the side of caution. “As we look ahead, the future will be determined by science and health indicators. These include how well the virus comes under control and what treatment have been developed,” Bhatia adds.
“Once we emerge from this low-visibility environment impacted by Covid-19, we expect the industry to resume its long-term growth trajectory with DRAM demand growth CAGR in the mid-to-high teens and NAND in the 30% range,” said Micron CEO Sanjay Mehrotra at the earnings call, referring to the company’s two main products.
Micron’s investment of US$15 billion in Singapore makes it one of the largest multinational investors here. Its local crown jewel is a high tech plant at Woodlands, which employs thousands of engineers and operators.
According to Chen, there was some “inconvenience” when the movement control order (MCO) was imposed by the Malaysian government on March 18, affecting many of Micron’s employees who commute daily between Johor Baru. A number of the company’s operators and technicians who were also “caught by surprise” by the MCO either did not able to make it back to Singapore in time or were unable to go home to collect their belongings.
But the company quickly arranged temporary housing in hotels for affected workers and also gave them some allowances to buy daily necessities. Chen is also proud to add that their Singaporean colleagues have pitched in, taking on more overtime duties so that production schedules can be maintained.
Although the manpower issue was resolved, Micron is not immune to the supply chain disruptions that have become widespread as movement across borders becomes increasingly tougher.
Bhatia, for one, recalls how “alarm bells” rang for Micron’s management when the Chinese government announced the lockdown of Hubei province during the Lunar New Year period. “As the Covid-19 virus jumped from country to country, we’ve had to stay ahead and think ahead,” he says.
Micron had to reach out to its global network of suppliers so that it was able to fulfil orders on time. “Luckily, we had multi-sourcing and increased capacity, or identified different sources for some components,” says Bhatia. “We have really tried to stay ahead of the crisis from the beginning.”
While Micron’s operations at Penang were temporarily affected by Malaysia’s MCO, operations quickly resumed as the semiconductor industry was one of the sectors deemed essential. According to Chen and Bhatia, there were hardly any significant disruptions at other Micron sites — although they had to fight a “constant battle” to keep the supply chain flowing smoothly.
“The biggest challenges are going to be centred around how we’re able to maintain our supply line of materials and equipment coming into the factory,” says Bhatia. “The semiconductor supply chain of materials and equipment is really a global one that touches many different countries and regions around the world.”
Bhatia says Micron’s biggest challenge now is to maintain its supply line of materials and equipment for its facilities
Chen notes that barring disruptions in Malaysia due to the MCO, Micron’s operations in other countries remain uninterrupted
Changing trends, long-term demand
Whatever the disruption, the Covid-19 outbreak has accentuated the strong, underlying demand for semiconductors not just in the near term but also over the long run. For example, as more people switch over to remote forms of working and communication, Micron is set to benefit from a boost in demand in its data centre and personal computing markets. In short, Bhatia observes that Micron, along with other semiconductor companies, are able to provide many things that help the world cope with the virus outbreak.
In particular, DRAM and NAND technology are going into servers and applications that are either helping scientists trying to synthesise Covid-19 vaccines and medicines at an accelerated pace, or making contract-tracing easier for the authorities. In addition, people are also switching over to e-commerce and e-learning as they work and study from home. And with remote conferencing and Cloud-based applications becoming a big part of work, there is a need for multiple computing platforms to work and communicate on, spurring demand for higher personal computing power and, in turn, more advanced semiconductors, says Bhatia.
For the moment though, Bhatia says Micron’s outlook for the consumer-oriented sector is looking bleak. This is because the group’s smartphone and automotive segments are likely take a hit if the outbreak stretches on and dampens consumer sentiment.
Bhatia notes that its smartphone division reported lower productivity and component supply as several Chinese cities and provinces were locked down by the government. And even as China is starting to rebound over the past weeks, demand for smartphones has stayed low.
However, market trends do change and Micron simply has to adjust accordingly. “We are definitely still keeping the long-term trends in mind, but we have adjust our near-term capital and investment plans to existing demand while the world copes with the crisis,” says Bhatia.
Nevertheless, both Chen and Bhatia agree that the virus will change the way people do things today, whether they like it or not. And the key thing to do for the semiconductor industry is to innovate, relentlessly. “Something that has always happened when these great, massive dislocations take place is that you end up seeing innovation coming out of them,” says Bhatia.
“So you could see the same thing as the world emerges out from the Covid-19 pandemic: Technological innovation. And Micron, being at the centre of all digital trends, hopes to take advantage of it.”
