Micron Electronics Joins PC Industry Grinches
by Elyssa Jaffe
11:34:00 AM December 01, 2000 GMT
Shares of direct personal computer maker Micron Electronics [MUEI: Nasdaq] slid to a five-year low Friday after warning that fiscal 1Q sales will fall below forecasts. Micron joins its larger rival Gateway Computer [GTW: NYSE], which confessed to the Street Wednesday that it would report lower revenues and earnings because of lackluster PC demand.
The computer industry is in the midst of a slowdown as a result of overall consumer unwillingness to upgrade or replace older computer models. Computer manufacturers had remained hopeful that sales would improve for the holiday selling season. However, over the Thanksgiving weekend -- the unofficial start of the shopping rush -- demand did not materialize as Micron had hoped.
Micron now expects fiscal 1Q sales of $385m-$400m, and earnings per share ranging from $0.01-$0.04. The per-share estimate from Micron is far below the First Call/Thomson Financial consensus analyst forecast of $0.11. The company anticipates releasing results Dec. 20.
In addition to the slow holiday PC sales, Micron Electronics said that falling prices in dynamic random-access memory chips, or DRAM, would also impact DRAM revenues. DRAM pricing is highly volatile and estimating forward revenue and profits from it is difficult. This fact certainly causes a measure of uneasiness for investors as DRAM revenues currently make up close to 40% of Micron’s sales base.
Last quarter, Micron posted earnings that roughly tripled expectations, a surge primarily caused by sales in its memory division. Investors interpreted the results as a sign that the company was on a firm track of sustained profitability. All three of the company’s main divisions -- PCs, web hosting and memory -- grew at double-digit rates from the prior quarter. Now, two of those units have warned, causing the company to stumble on its road to recovery.
Going forward, the company’s reliance on PCs will inevitably be reduced. Micron’s growing Internet access and web hosting business has shown signs of strength, and this foundation should help serve as a foundation for further growth. However, in the near term, PCs will continue to drive Micron's overall business.
Creating value in this area is getting harder all the time, which is something investors should keep in mind when considering whether Micron's long-awaited business turnaround really represents a long-term investment opportunity or not.
MarkTiming
Technically, in the short term, Micron Electronics [MUEI: Nasdaq] has broken to the downside and still appears likely to erode to the $3/$2-1/2 area over the next two to four weeks (where a base then likely forms). Resistance at $5-3/4 should cap rallies. As of Friday morning the shares were off $5/8 to $4-11/16.
ideaadvisor.com
Five year low. Wow.
Jack |
