Micron net loss grows to $232M

The DRAM and NAND flash memory giant began its fiscal 2008 on rocky ground, recording a $232 million net loss and a $62 million write-down of its finished goods and work in process inventories for memory products.

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 12/21/2007

Boise, Idaho-based memory maker Micron Technology Inc. announced Thursday afternoon for its fiscal Q1 2008, ended November 29, the company incurred a net loss of $262 million, or 34 cents per diluted share, on net sales of $1.5 billion.

Comparatively, in its fiscal Q4 2007, Micron reported a net loss of $158 million, or 21 cents per diluted share, on net sales of $1.4 billion.

Micron said the growth in revenue in Q1 compared to Q4 was primarily driven by significant sales volume increases in memory products, for both DRAM and NAND flash, while sales of CMOS image sensors in Q1 also increased approximately 15 percent compared to Q4 as a result of a higher level of unit sales.

In terms of megabit sales volume for DRAM and NAND flash memory products, sales increased approximately 25 and 60 percent, respectively, comparing Q1 to Q4, primarily as a result of higher levels of production and strong demand.

However, Micron pointed out that its Q1 results continued to be “significantly affected” by industry supply/demand dynamics with average selling prices decreasing approximately 20 percent for DRAM and 30 percent for NAND flash memory products compared to the already low prices seen in Q4.

In fact, market research firm iSuppli Thursday trimmed its 2008 semiconductor revenue forecast on economic fears and memory oversupply.

As a result, and primarily due to prevailing market conditions, Micron recorded a $62 million write-down of its finished goods and work in process inventories for memory products, in order to reduce their carrying values to their estimated market values, which is included in the company’s reported cost of goods sold for fiscal Q1 2008.

Despite the write-down, Micron pointed out that it’s achieved a decrease in cost of goods sold per megabit in Q1 of approximately 10 and 15 percent for DRAM and NAND Flash memory products, respectively.

As well, higher levels of production and lower manufacturing costs in Q1 compared to Q4 were a result of the company’s acceleration of industry-leading process technology, transitions to higher density memory products and significant improvements and growth in the company’s 300 mm operations. Micron reminded that it continues to ramp production of 300 mm NAND wafers at its IM Flash joint venture fab in Lehi, Utah and 300 mm DRAM wafers at its TECH Semiconductor operation in Singapore.

Equity research firm Lehman Brothers semiconductor research analyst Tim Luke said in a report regarding Micron’s results that Micron’s results were significantly below consensus estimates, but slightly ahead of Lehman’s low-end estimates.

“Further, as we have written about before, the company provided subdued guidance on what we believe continues to be a very challenging pricing environment (DRAM/NAND ASP declines outpacing costs saves). Thus, with memory pricing likely to trend lower over the near-term, our low-end estimates edge lower again. While we are encouraged by cost saves and significantly higher NAND bit growth this quarter, we remain concerned that this may be offset by: (1) weakening DRAM/NAND pricing, (2) slowing PC OEM bit/box growth, (3) lingering inventory concerns, and (4) modest 200mm retirement, reducing forward visibility,” Luke said in the report.

“Importantly, with a high degree of fixed costs underlying memory makers' fundamentals, we believe continued deterioration in memory market contract pricing will continue to weigh on Micron's gross margins during F2Q08; our F08 EPS estimate moves to -95 cents from -64 cents prior, and C08 edges to -57 cents from -1 cent. While we were somewhat surprised that Micron reiterated its CAPEX guidance (actually appears the company increased its CAPEX guide as it said “$2.5B” last quarter vs. “$2.5-$3.0B” this quarter), reducing the potential for industry capacity rationalization, which is the key to a recovery in this market, with industry CAPEX set to move lower in CY08, we believe the outlook for memory may begin to brighten into 2H08,” he added.

Lehman maintained its cautious near-term outlook and “Equal Weight” rating, which means Micron’s stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12-month investment horizon.