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Mellow Micron

Posted on Thursday, Oct 2nd 2008

The financial markets are scary, and amidst this turbulence, earnings season is under way. Micron (MU) reported a larger-than-expected fourth quarter loss yesterday. The company was affected by the oversupply situation in the DRAM and NAND markets. Semiconductor prices continued to plunge and NAND ASP declines outpaced cost reductions; as a result Micron had to writedown its inventory for $205 million. 

Q4 net loss was $344 million or $0.45 per share, down from $158 million, or $0.21 per share last year. Revenue was up slightly y-o-y and down 3% q-o-q to $1.45 billion versus analyst estimates of $1.54 billion. Excluding the $205 million inventory writedown charge and a $70 million benefit for price adjustments for NAND flash memory bought in prior periods, net loss would have been $209 million, or $0.27 per diluted share, versus analyst estimates of $0.24 per share.

For 2008, net loss was $1.6 billion on net sales of $5.8 billion. This is the seventh straight loss despite the company’s various cost-cutting measures. Micron has reduced its workforce by 3% to 23,509 employees, with the SG&A head count down 15%. It has even cut its executives’ pay by 20%. It reduced capital expenditure from $4.1 billion in 2007 to $2.9 billion and plans to further reduce capex to between $1 billion and $1.3 billion in 2009. It has delayed the IMFS fab build-out till market conditions improve. 

By segment, both DRAM and NAND revenue declined sequentially while image sensor revenue increased. DRAM sales in Q4 decreased slightly compared with Q3 due to a 5% decrease in gigabit sales. NAND Flash products sales decreased 10% q-o-q due to a 20% decrease in ASPs, partially offset by a 10% increase in gigabit sales. Sales of CMOS image sensors increased slightly on a sequential basis and accounted for 12% of revenue, versus 11% in Q3

Micron expects the weak demand situation to continue even through the typically strong holiday season. There is speculation that Micron may buy Infineon’s (IFX) stake in ailing DRAM maker Qimonda. As I pointed out in an earlier post, Micron should reduce its high concentration in the DRAM and NAND businesses and move towards a more differentiated product portfolio. And though Micron is slowly expanding its image sensor business, there is too much focus on the memory business for my comfort.

Micron is currently trading around $4.3 with a market cap of about $3 billion. The stock hit a 52-week low of $4.12 on September 5. For the moment, not a stock to touch. 

Chart for Micron Technology Inc. (MU)

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“For the moment, not a stock to touch.”

And that’s before considering its treble liability for its ring leader role in attempting to collusively destroy Rambus.

MU is open to over several billion dollars of damages for willful patent infringement and price fixing.

Rambus is winning the long war in multiple court cases against a criminal cartel of major memory manufacturers led by MU. MU is on a death watch in my neighborhood.

pk de cville Thursday, October 2, 2008 at 8:02 PM PT