By Akash Sriram and Jane Lanhee Lee

(Reuters) -Micron Technology Inc on Tuesday forecast third-quarter revenue would tumble nearly 60% from a year earlier but the steep drop was in line with Wall Street expectations and company executives painted a rosy outlook for 2025 with artificial intelligence boosting sales.

With a glut still nagging the chip industry, Micron expects the deepest revenue drop since 2001. Micron said it would keep investments at about $7 billion for fiscal year 2023, the lower end of a previously stated range. It will target a 15% headcount reduction this year, bigger than its previous 10% target.

Micron shares in after hours trading were up about half a percent.

Matt Bryson, Wedbush Securities chip analyst, said the cut in capital spending was a positive for investors as it would “pull forward the timing and breadth of a future recovery”.

Micron Technology President and CEO Sanjay Mehrotra told analysts on an earnings call that he was confident about the long-term and said the memory chip industry would see a record calendar year 2025 in terms of market size.

“When you look at the future, it equals AI. And AI equals memory, and Micron is well positioned with our technology and product road maps to address the growing opportunities there,” he said.

A proliferation of generative AI chatbots such as Microsoft Corp-backed OpenAI’s ChatGPT has boosted demand for data centers, mitigating the trend of easing demand for chips. Analysts say the expansion of generative AI could fuel a jump in the need for storage.

Sumit Sadana, Micron’s chief business officer told Reuters that a typical AI server has up to eight times the amount of DRAM and three times the amount of NAND that a normal server has. DRAM is memory that erases when the device is turned off while NAND stores memory even when the device is off.

Sadana said that despite the near-term challenges, the new factories in Idaho and New York are on schedule to start construction this year and next year respectively. “We are making good progress in terms of our chips application,” he said about applying for funding for those plant through the CHIPS and Science Act.

Micron said customer inventories are improving and it expects gradual improvements to the industry’s supply-demand balance. It also said gross margins that were hit by the chip glut will continue to improve.

The company expects third-quarter revenue of $3.70 billion plus or minus $200 million, matching analysts’ average estimate, according to Refinitiv data.

Revenue for the second quarter fell by about 53% to $3.69 billion and the company lost $2.3 billion, compared with a profit of $2.26 billion a year earlier.

Micron expects to incur a loss of $1.58 per share, excluding items, plus or minus 7 cents, in the current quarter compared with Wall Street expectation of 90 cents per share.

(Reporting by Akash Sriram in Bengaluru and Jane Lanhee Lee in Oakland, Calif; Editing by Sriraj Kalluvila and David Gregorio)

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