Micron CEO: Customers driving hard bargain on price contributed to memory shortage

Sanjay Mehrotra, the CEO of Micron Technology, recently addressed the ongoing memory chip shortage, emphasizing that the dynamics of customer negotiations have played a significant role. Speaking on CNBC's 'Mad Money,' Mehrotra pointed out that the relentless pursuit of lower prices by customers in recent years has contributed to the industry's current supply-and-demand challenges, which have resulted in increased prices for various consumer electronics, including smartphones and computers. Mehrotra remarked, "Certain customers drove pricing significantly down in our industry," noting that by 2023, Micron's prices had plummeted to one-third of their previous levels. This drastic reduction not only impacted Micron's profitability but also pushed many memory suppliers into negative gross margins, which severely restricted their ability to invest in manufacturing capacity at a time when demand for artificial intelligence was beginning to surge. In fiscal 2023, Micron reported a gross margin of negative 7.3%, according to FactSet. Mehrotra explained, "Companies were losing money. They couldn't afford it. That really impacted the investment capability of the industry." Despite these challenges, Micron continued to invest, although at a significantly reduced rate, with capital expenditures dropping from $12.1 billion the previous year to $7.7 billion. The demand for memory chips driven by AI applications has seen a steady increase since the downturn, with a notable surge last year that positively influenced Micron's financial results. The company's stock has soared over 240% in the second quarter of this year, adding more than $920 billion in market value, bringing its total market capitalization to approximately $1.3 trillion. Looking ahead, Mehrotra anticipates that the supply constraints will continue well into 2027, as building new semiconductor fabrication plants is a lengthy process and next-generation memory chips are becoming increasingly complex to produce. To mitigate the supply gap, Micron is committing around $200 billion to manufacturing and research and development, including new facilities in Boise, Idaho, and Syracuse, New York. The Boise project is the most advanced, with the first chips expected to be produced by mid-next year. The repercussions of the memory chip shortage are already impacting consumers, as evidenced by Apple's recent decision to raise prices on several Mac and iPad models. CEO Tim Cook attributed these unavoidable price hikes to soaring memory and storage costs, a clear indication of how AI-driven demand is influencing component costs across the consumer electronics landscape.