Dive Brief:

• Micron's inventory is at its "leanest level in many years" as it encounters shortages of integrated circuit components, limiting its ability to meet full demand, CEO Sanjay Mehrotra said on the company's Q4 earnings call.
• The computer memory chipmaker's days of inventory was 94 for the quarter — "definitely below the optimal level" of 100 to 105 days, CFO Dave Zinsner said. Micron is especially lean in finished goods inventory, with that category's value at its lowest level since 2013.
• Micron's PC customers are encountering their own inventory challenges as they face shortages of other components, slowing near-term demand the COVID-19 pandemic had accelerated. PC-makers have cut back on memory and storage purchases to wait on semiconductors to complete their computer builds, Mehrotra said.

Dive Insight:

The challenges Micron's customers are having in obtaining other components are slowing the near-term need for memory chips.

In September, manufacturers of computer and electronic products saw inventory gains as part shortage issues continued, according to the Institute for Supply Management. Manufacturers have held onto work-in-progress products, waiting for components in short supply like semiconductors to come in as order backlogs increased. Automakers, home appliance manufacturers, consumer electronics companies and other industries producing goods with chips inside have eased output due to the shortage.

"While I expect the shortages to bottom out in the second half, it will take another 1 to 2 years before the industry is able to completely catch up with demand," said Intel CEO Pat Gelsinger on the chipmaker's Q2 earnings call.

But with unmet end-consumer demand persisting for PCs, Mehrotra said current supply chain constraints are merely "pushing out" purchases of its products and that demand will return to normal in a few months.

"It really is all driven by work from home, learn from home," Mehrotra said. "That demand acceleration that has taken place through the pandemic will continue to support a healthy environment for PC in calendar year '22 as well."

Fellow memory chipmaker SK Hynix has also encountered inventory challenges amid the COVID-19 pandemic. It realized that utilizing its production capacity wouldn't be enough, so it tapped deeper into its inventory to keep up, Park Myoung-Soo, SK Hynix's head of DRAM marketing, said on the company's Q2 earnings call. Declining inventory trends in the industry "are likely to continue into the end of this year and also all the way into next year," Park added.

Micron's chip supply will have to grow enough to both meet near-term order requirements and replenish its inventory deficit ahead of a rebound in PC-maker demand anticipated by company executives.

Micron doesn't ever want inventory below 95 days, according to Zinsner, and inventory levels "will probably be up a few days" the next quarter but still below the ideal 100-day figure. Micron's days of inventory was well above 100 prior to fiscal year 2021.

Mehrotra said the memory chip industry as a whole has pared back its inventory in recent years, but now Micron's supply is too lean. This is in part due to issues with procuring enough controllers and analog integrated circuits, which will limit the company's large shipments to customers in Q1, Mehrotra said.

"As we already talked about, finished goods inventory is really where we're particularly lean," Zinsner said. "And we do have to make some progress in that space to get ourselves into a better position. But overall, I would say the back half of the year we'll probably be in the optimal range."