Micron CEO Sanjay Mehrotra said Tuesday that customers who drove hard bargains on pricing in recent years contributed to the current memory chip shortage affecting smartphones, computers and consumer electronics. Speaking on CNBC's Mad Money, Mehrotra explained that aggressive price negotiations pushed industry prices down to one-third of previous levels in 2023, forcing chipmakers into negative gross margins and limiting their ability to invest in new manufacturing capacity. The pricing collapse occurred just as artificial intelligence-driven demand began accelerating, creating a supply-demand imbalance that has led to recent price hikes across the electronics industry.
Pricing Collapse Drove Industry Into Negative Margins
"Certain customers drove pricing significantly down in our industry," Mehrotra told Jim Cramer on Tuesday. "In 2023, our prices came down to one-third of what they were." The pricing collapse pushed Micron and other memory suppliers into negative gross margins, according to the CEO. Micron's gross margin fell to negative 7.3% in its fiscal 2023, which ended in August of that year, according to FactSet.
Reduced Capital Investment Constrained Manufacturing Capacity
The financial pressure left companies without the flexibility to invest in new manufacturing capacity. "Companies were losing money. They couldn't afford it," Mehrotra said. "That really impacted the investment capability of the industry." Micron's capital expenditures fell to $7.7 billion in fiscal 2023, down from $12.1 billion in the prior year. The CEO said Micron continued investing through the downturn, though "those investments were significantly cut back from the year prior."
AI Demand Drives Micron Stock Performance
AI-driven demand for memory chips has steadily increased since the 2023 downturn in pricing. The acceleration became more apparent last year, boosting Micron's financial performance. The stock climbed more than 240% in the second quarter and added more than $920 billion in market value, putting Micron's market capitalization at roughly $1.3 trillion.
Micron Invests $200 Billion in New Manufacturing Facilities
Mehrotra said the supply crunch is likely to persist well beyond 2027 because new semiconductor fabrication plants take years to build and next-generation memory has become significantly more complex to manufacture. To help close the gap, Mehrotra said Micron is investing roughly $200 billion in manufacturing and R&D, including new memory fabs in Boise, Idaho and Syracuse, New York. The Boise project is furthest along, with the first chips due out "in the middle of next year" and increasing from there, according to the CEO. The Boise site is slated to eventually include two fabs.
Memory Shortage Pushes Apple to Raise Product Prices
Last week, Apple raised prices on several Mac and iPad models after CEO Tim Cook said soaring memory and storage costs had become "unavoidable." The price increases underscore how AI-driven demand is pushing higher component costs into consumer electronics.
FAQ
What caused memory chip prices to collapse in 2023?
Micron CEO Sanjay Mehrotra said certain customers drove pricing significantly down in the industry, with prices falling to one-third of previous levels in 2023. This aggressive price negotiation pushed memory suppliers into negative gross margins.
When will Micron's new Boise facility produce chips?
According to CEO Sanjay Mehrotra, the Boise facility will produce its first chips "in the middle of next year," with production increasing from there. The Boise site is planned to eventually include two fabrication plants.
Why did Apple raise prices on Mac and iPad models?
Apple CEO Tim Cook said soaring memory and storage costs had become "unavoidable," leading the company to raise prices on several Mac and iPad models last week. The increases reflect how AI-driven demand is pushing higher component costs into consumer electronics.
