Micron posts $1.6B net loss for fiscal 2008

Steve Appleton, Micron chairman and CEO commented, "The global memory market continues to experience severe oversupply and price degradation, and it remains a challenging period for all of us competing in the industry. In view of market conditions, we are implementing a 20% reduction in salary compensation for Micron senior executives, while we continue to diligently work through our business planning process to ensure the competitiveness and long-term success of the company."

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 10/2/2008

With the global memory market continuing to experience severe oversupply and price degradation, Boise, Idaho-based memory giant Micron Technology Inc today reported a net loss of $344 million, or 45 cents per diluted share, on net sales of $1.45 billion for its fiscal Q4, ended August 28.

The results include a non-cash charge to cost of goods sold of $205 million to write down the value of work in process and finished goods inventories of memory products to their estimated market values and the effect of a recovery of $70 million for price adjustments for NAND products purchased from other suppliers in prior periods, Micron said.

For the 2008 fiscal year, Micron posted a net loss of $1.6 billion, or $2.10 per diluted share on net sales of $5.8 billion, which include the effect of a non-cash charge of $463 million during Q2, in accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets,” to write off the carrying value of goodwill previously recognized in the company’s memory segment.

Absent the effects of the Q4 inventory write-down, the NAND Flash price adjustments and second quarter goodwill write-off, net loss would have been $209 million, or 27 cents per diluted share, for Q4 and $1.021 billion, or $1.32 per diluted share, for the 2008 fiscal year.

In Q4 and for the fiscal year, the company reported that it generated $243 million and $1 billion, respectively, in cash flows from operating activities and ended the quarter with $1.4 billion in cash and investments.

Steve Appleton (pictured at left), Micron chairman and CEO commented in a statement, “The global memory market continues to experience severe oversupply and price degradation, and it remains a challenging period for all of us competing in the industry. Micron has pursued various initiatives in the past year to drive greater cost efficiencies across our operations and has made significant progress as shown by our cost per bit reductions and the contribution of cash flow from operations to the balance sheet. Consistent with these efforts and in view of market conditions, we are implementing a 20% reduction in salary compensation for Micron senior executives, while we continue to diligently work through our business planning process to ensure the competitiveness and long-term success of the company.”

Q4 memory products sales dropped 4% from Q3, while DRAM sales decreased slightly in Q4 compared to Q3 primarily as a result of an approximate 5% decrease in gigabit sales. Comparing the same periods for NAND Flash products, sales decreased approximately 10% as a result of an approximate 20% decrease in the average selling price, partially offset by an approximate 10% increase in gigabit sales.

Without the effect of the inventory write-down in Q4, and the NAND Flash price adjustments, Micron’s gross margin on sales of memory products was slightly positive, with cost of goods sold per gigabit in Q4 decreasing approximately 5% and 15% for DRAM and NAND Flash products, respectively, compared to Q3 as inventories for memory products decreased in Q4 compared to Q3 partially as a result of the write-down at the end of Q4.

At the same time, Q4 CMOS image sensor sales increased slightly over Q3 and represented 12% of the company’s total sales in Q4. Gross margin on sales of imaging products during Q4 decreased to 29% compared to 35% in Q3 quarter, primarily due to lower average selling prices.

Analyst Doug Freedman of American Technology Research said in regard to Micron’s results that of further concern beyond steep ASP declines whereby (November NAND will be down possibly 30 to 35% and DRAM down 15%), there are no signs of end market demand elasticity and that PC units were characterized as "flat +/- a few percentage points" by Micron management entering the holiday season, despite increases in DRAM content loading looking to drive demand elasticity.

“Further consolidation/liquidation in DRAM appears likely, as management sees more capacity coming offline than ever before. In NAND, the company is restraining bit growth at only 15% for the next few quarters, or far below the growth rates projected by industry research (over 100%),” Freedman said.

“Despite the environment, Micron remains one of the top positioned memory companies entering a downturn scenario, with a strong competitive position, untapped sources of cash, and continued cost per bit reductions. Decisions and product execution remain sound, including a 20% reduction in senior executive compensation to reflect market conditions,” he added.

Freedman maintained his neutral stance on Micron stock until the magnitude of discretionary consumer demand at risk can be measured. “We believe a downturn scenario hides possible share gains until a recovery is apparent. We recommend that new investors remain on the sidelines,” Freedman concluded.