Micron posts $225M loss, appoints Durcan president

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 6/29/2007

Due to “significant” per megabit cost decreases for its NAND Flash and DRAM devices, memory maker Micron Technology Inc. reported late Thursday a loss of $225 million or 29 cents per diluted share on sales of $1.3 billion for its fiscal Q3 ended May 31.

The Boise, Idaho-based memory giant is citing per megabit cost decreases for NAND Flash and DRAM of approximately 30 percent and 15 percent, respectively, compared to fiscal Q2.

These decreases are being attributed primarily to transitions to higher density, advanced geometry devices and the ramp of NAND Flash products at the company's 300-mm fabrication facilities along with continuing oversupply in the channel.

The company also said its net loss was “largely the result of severe price declines across most memory products.” 

Fiscal Q3 gigabyte sales of NAND Flash memory products increased by approximately 75 percent sequentially to represent approximately 25 percent of the company's total memory revenue.

Imaging product sales remained at 11 percent of Micron’s total net sales reflecting industry softness in mobile handset sales and pricing pressure.

Also Thursday, Micron chairman and CEO Steve Appleton announced that COO Mark Durcan has also taken on the president role.

Durcan was appointed COO in early 2006, and has served within Micron since 1984 in roles starting with a diffusion engineer, to technology process integration development to CTO and VP of R&D.

As a result of the financial results, Micron said it is pursuing a number of initiatives aimed at driving greater cost efficiencies and revenue growth across its operations, including developing production cost efficiencies closer in location to its global customers, evaluating functions more efficiently performed through partnerships or other outside relationships and reducing the company’s overhead costs to meet or exceed industry benchmarks.

Micron also said it is exploring opportunities to leverage the company’s technology and product portfolio to accelerate revenue growth and increase shareholder value. While some elements of these initiatives will be effected immediately, others will take multiple quarters to implement.

Following this news, Lehman Brothers semiconductor research analyst Tim Luke maintained his “Hold” rating on Micron’s stock, according to a research note released after the results were made public.

Given higher sales and weaker margins due to mix (growth in low-margin NAND revenue and continued pressure in high margin CMOS), Lehman said it adjusted its model with slightly higher revenue but lower gross margins and higher operating expenses. A mid single digit cost saves in DRAM are unable to offset the 20 to 25 percent declines in ASP, and therefore, DRAM, which constitutes 70 percent of revenues, will likely continue to see margin pressure before ASP stabilization occurs, the firm believes.

Luke noted caution given inventory concerns - one quarter of inventory in CMOS and Specialty DRAM, increased competition in the imaging segment (Samsung, Toshiba weighing on prices) and low visibility on DRAM and NAND ASPs.

“Therefore, while encouraged by the mix-shift out of the commoditized PC DRAM segment, and manufacturing execution on incremental fab ramps, we believe visibility on margins remains somewhat blurred with mix and excess capacity likely to continue to pressure margins,” he explained.

“Overall, while checks suggest solid PC demand trends, but with visibility on both DRAM and NAND pricing uncertain, and an aggressive mix-shift into NAND markets, we retain our [Hold] rating as we look to monitor the DRAM and NAND supply/demand outlook,” Luke concluded.