Dave, their use of language when it comes to "shipments" v. "production" is one of the things driving me nuts.
re: I do wish she would have asked Dan Niles to comment on the decline in bit production as well as the backend problems
I'm not sure bit production (as opposed to shipments) wasn't actually up. And on the flipside, where's the hard evidence that it was up?
What was said on the conference call? I don't know if it's the company or the nature of the industry, but why can't they just be consistent?
"Output" was up 10% (the release).
"shipments" were down 10% (the 10-Q).
"Net sales" were up 10% (the 10-Q).
There was an SEC filing where I saw them make a distinction between bits produced and bits shipped within the same paragraph. They gave sequential percentage numbers for each, since they were different, it would seem whoever prepared that document was making a distinction. Hang on...from 2Q'98
Total megabits shipped increased by 47% and 85%,
respectively, for the second quarter and first six months of 1998 as compared to the same periods in 1997, and total megabits produced increased by approximately 70% and 100%, respectively.
I don't recall that distinction made elsewhere in a filing, but I only looked back over the last 9 quarters.
Message 7322225
Their use of language doesn't make things easier.
From the notes of the conference call posted by Carl, clearly it seems that the some analysts were under the impression there was a 10% increase in bits.
7. Analysts were surprised (as was I) by the fact that even with TI there was only a 10% sequential bit increase. This was due to shutting down the 6" line in Italy and replacing it with 8". Starting in the next quarter there will be about a 20% sequential bit increase.
Message 6958833
This wouldn't be driving me crazy if there wasn't this discrepancy between Niles and Kurlak. Here's what I mean:
Dan Niles states in his report:
Micron's bit production growth in the quarter was up 10%..."
And yet Kurlak states:
Bits of memory shipped grew 10%
sequentially, which is less than expected when including
the TXN fabs. More rapid bit growth of 20% sequentially
is expected in FQ2 and Q3 as the TXN fabs ramp up
My question is - did MU actually say point blank something to the effect of "bit production" was up 10% or affirm that production was up 10%?
Or did the analysts on the call take "output" on the release to mean "production" and sort of skipped any clarification like "excuse me, but by output you mean what exactly - sales, bits shipped, or bits produced?" (And looking at the financials they were given, if they did have any questions regarding specifically what was meant by "output" they most likely would have not asked about sales of semiconductor memory products because on the financials accompanying the earnings release sales of semicon memory products were up over 14% sequentially; of course, that +14% figure includes the 18.6 mil. in service revs. - back that out and you get the 10% net sales increase in the 10-Q) and instead just fired off a question like "why was bit growth only 10%?"
Niles is talking "production". Kurlak's talking "shipped".
(Am I wrong in assuming there's a difference or is this a case where the industry insiders would view those terms as generally interchangeble? I see it as - You produce X. You ship Y. And if you produce more than you ship, the extra goods end up as finished goods.)
What was MU talking? Did they themselves clarify what was meant by a 10% increase in output? Kip certainly has ample opportunity to do it in the near future, but what actually occurred on 12-23-98?
I'm no Kurlak fan, but the guy is the reigning First-team II All-Star on semiconductors (how or why this is the case - that's another issue entirely <g>). Where is he getting the idea that shipments were up 10%? If there's a distinction to be made, is it that he's not making it and just assuming that since they supposedly were selling everything they could produce, they shipped what they produced?
I think if you make the distinction between "production" and "shipments", it's possible that despite a 10% increase in production, they shipped 10% less.
What's bothering me is:
A. why they dropped the use of the word "megabit" in the PR and
B. that they did not state in the 10-Q that bit production was up 10%. I checked again, I can't find a specific reference. I did find a year-over-year reference to "production increases" in the 1Q'99 10-Q:
Net sales of semiconductor memory products for the first quarter of 1999 decreased by 7% as compared to the first quarter of 1998, principally due to a 52% decline in average selling price per megabit of memory, partially offset by an 89% increase in megabits shipped. This increase in megabits shipped was due to production increases principally resulting from shifts in the Company's mix
of semiconductor memory products to higher average density products, ongoing transitions to successive reduced die size ("shrink") versions of existing memory products and additional output from the acquired operations....
Right after making a year-over-year reference to "production" we get the next paragraph, which reads as follows:
Net sales of semiconductor memory products increased by 10% in the first quarter of 1999 as compared to the fourth quarter of 1998 principally due to an approximate 18% increase in average selling price per megabit of memory sold, partially offset by a 10% decline in megabits shipped. During the first quarter of 1999 prices for the Company's 16 Meg DRAM product increased significantly as that device reached the end of its product life cycle and customers sought
lifetime-buy arrangements. The average selling price for the 64 Meg SDRAM increased 8% in the first quarter of 1999 as compared to the fourth quarter of 1998. The decrease in megabits shipped was primarily due to backend production constraints associated with the Company's rapid transition to the .21u shrink version of its 64 Meg DRAM product. The effects of these constraints were partially offset by the additional sales of semiconductor memory products arising from the Company's newly acquired operations. These constraints are
expected to be resolved in the second quarter of 1999...
In past filings, they've talked about "production".
In this filing they make a year-over-year reference to "production" in the preceding paragraph.
Yet, when given the opportunity in the paragraph concerning sequential comparisons, they don't throw in something like "...however, megabit production did increase 10%".
Why?
It's certainly possible production was up 10% sequentially while shipments were down 10%.
Why isn't that stated?
In theory, I can see why shipments would be less than production. The snapshot we're getting ends 12-3-98. Maybe they're building up some inventory for the holiday rush, etc.
But I don't get why if production was up 10% and shipments were down 10%, they would only mention shipments. This is arguably one of the more Panglossian high-tech companies out there, and yet they do not put that in the 10-Q.
The fact that it isn't in the 10-Q doesn't mean it didn't happen, but IMHO it's curious by its absence.
In regards to why the decline in shipments was not stated in the press release Nash says in the NYT:
"The press release is a summary document used to discuss what we believe is of interest to shareholders and reflect company trends."
That's interesting, because MU has made statements regarding megabits "sold" on past press releases:
3rd Quarter 1998: micron.com
The Company's semiconductor memory operations increased megabits sold in the third quarter by 45% over the immediately preceding quarter as a result of manufacturing efficiencies achieved on the latest generation 16 Meg and 64 Meg DRAM parts.
4th Quarter 1998: micron.com
Paragraph 5 (sequential comparison): The Company's semiconductor memory operations increased megabits sold in the fourth fiscal quarter by 63 percent over the third fiscal quarter in part due to a 39 percent decrease in finished goods inventory.
So, if in 3Q'98 and 4Q'98, the megabits sold were of interest to shareholders why weren't they of interest this past quarter? The 10-Q says shipments went down. That's not of interest?
Actually, if you go back to the 9 quarters worth of PR's, again, the term they use changes.
Message 7316915
So when Nash states that part off the disclosure is "what we believe is of interest to shareholders", are we to believe that in 3Q'97 MU believed that shareholders were interested in "production" and not "shipments", but then when we fast forward to 3Q'98, this time shareholders were interested in "megabits sold" and not megabits "produced"?
How do they determine that? Is there some kind of touch-tone survey MU's IR does to determine whether they talk about "megabit output", "megabits sold" or "megabit production"? <g>
If the Micron spokesperson is characterizing the PR as "a summary document used to discuss what we believe is of interest to shareholders and reflect company trends", I'd be very curious to learn what their characterization of a quarterly SEC filing is.
Make the same comparison with the SEC filings. Why is megabit production something the company includes in a 10-Q in quarter A, but megabits shipped in quarter B? That's a fair question. At the very least, it's confusing.
Again, Kip Bedard has a whole slate of conferences to clear up any confusion. He should clear it up.
It is an amazing that he apparently has not read the 10Q.
Either that or he's lucky he doesn't have to pass a quarterly "reading comprehension" test <g>
Good trading,
Tom
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