"Ask Michael Burke" credited by Sunday NYTimes with uncovering Micron earnings report discrepancy.
MARKET WATCH -- January 31, 1999
Oh, Those Pesky Little Financial Details
By GRETCHEN MORGENSON
NEW YORK -- This is a tale of two earnings reports
from Micron Technology Inc., one of the world's
largest makers of semiconductor chips. Micron also
happens to be a very hot stock.
The reports detail the results for the company's first
quarter, which ended Dec. 3. One is a news release
issued Dec. 23; the other is the quarterly report, or
10-Q, filed with the Securities and Exchange Commission
on Jan. 5. The two reports differ in intriguing ways.
The most glaring discrepancy is in Micron's sales of
semiconductor memory products. The news release says
these totaled $428.1 million in the quarter. The 10-Q
says they totaled $409.5 million.
Which number is correct? A Micron spokeswoman, Julie
Nash, said: "There was a $19 million reclassification
of numbers that went from semiconductor memory products
sales into 'other.' These were sales that were relative
to providing semiconductor revenues, but they were
actually service fees."
She said Micron, of Boise, Idaho, found the error and
fixed it in the 10-Q. But it did not publish a
corrected news release. "It was not material," she
said.
So it's immaterial that 4.3 percent of the company's
semiconductor sales weren't semiconductor sales at all.
None of this would matter if investors relied on 10-Qs
rather than news releases for investment information.
But that is not the case.
Dan Niles, an analyst at BancBoston Robertson Stephens,
has a strong "buy" rating on the stock. The revenue
number he has used in recommending the stock is the
$428.1 million from the news release.
Niles did not know the number was incorrect until a
reporter told him on Friday. He said the new, lower
number would not change his positive view of the
company.
There is another interesting difference in Micron's two
reports. The 10-Q states that net sales of
semiconductor memory products increased 10 percent over
the previous quarter, a result of an 18 percent
increase in the chips' average selling price being
partly offset by a 10 percent decline in megabits
shipped. The news release, however, is mum about the
decline in shipments.
It is a big deal to show a decline in megabits shipped.
With chip makers constantly improving the memory
capacity of their products -- also known as the yield
-- a drop in megabits shipped is not good news.
Why did the news release not mention this? Ms. Nash
again: "The press release is a summary document used to
discuss what we believe is of interest to shareholders
and reflect company trends."
Whether this passes the smell test is something Arthur
Levitt, chairman of the SEC, may want to ponder. Levitt
is justifiably concerned that companies make accurate
disclosures to investors.
Who uncovered the Micron discrepancies? Sleuths on the
Internet -- specifically, three people who post
comments on the "Ask Michael Burke" and "Micron Only"
threads on Silicon Investor; and Larry Woods, editor of
the Tech Review newsletter in Stoney Creek, Ontario.
Two footnotes: Since Micron's news release came out,
its shares have risen 49 percent. Not bad for a company
that lost $46.2 million in the quarter. And on
Wednesday, the company filed a registration of 2.75
million shares to be sold to the public.
Copyright 1999 The New York Times Company |
