Micron Earnings Should Shed Light On PC Demand
Oct 03, 2000 (Tech Web - CMP via COMTEX) -- While investors in Micron
Technology Inc. have weathered a rocky road, the company's earnings Wednesday
should give some indication as to whether the slope will continue downward.
Shares of Micron Technology Inc. (stock: MU) are at about half their value since
July, when the stock nearly broke the 100 mark.
But analysts in the technology sector are also looking at Micron to provide some
insight into the overall state of PC demand, which has been hotly contested over
the past month.
Eight analysts polled by First Call/Thomson Financial expect Micron, Boise,
Idaho, to report earnings of 96 cents per share for the August quarter -- still
a sharp increase from a year ago, when Micron reported a net loss of $17
million, or 7 cents per share, on sales of $1.1 billion.
The loss was primarily due to a 23 percent sequential decline in the average
selling prices (ASPs) per megabit of DRAM.
DRAM prices typically decline as additional manufacturing capacity is introduced
and finer-process technologies increase the number of chips that can be produced
per silicon wafer.
Spot prices for 64-Mbit PC133 DRAM have declined from $9 during the summer to
about $6.50, although contract prices have held relatively steady for the past
two months or so, analysts reported.
"The question everyone is asking is about the pricing outlook," said Joe Osha of
Merrill Lynch, San Francisco, who expects earnings of 77 cents per share, well
under estimates. "Frankly, it's still kind of squishy. The real change is in PC
demand, which is not so hot."
SG Cowen & Co., Boston, expects Micron to report earnings of 97 cents per share
on revenues of $2.24 billion, up 45 percent sequentially.
UBS Warburg LLC, San Francisco, expects earnings of 96 cents per share, matching
the consensus forecast, on revenues of $2.63 billion.
When Micron reports its own DRAM ASPs Wednesday in conjunction with its
earnings, analysts will attempt to extrapolate what those numbers mean in terms
of the available DRAM supply; Micron's own cost of production to manufacture
those DRAMs; the demand for that DRAM inside PCs and other appliances; the mix
of EDO, SDRAM, Direct RDRAM and other memory types; and how that mix will affect
prices in each individual DRAM segment, now and in the future.
Finally, analysts will also worry about the potential impact of pressure from
Rambus Inc. (stock: RMBS), which is trying to force Micron and other DRAM
manufacturers to pay royalties on all synchronous DRAM.
With so many variables to consider, analysts have stuck to the tried-and-true
metric of Micron's performance during the past weeks: PC demand. Following Intel
Corp.'s warning of lower PC demand, Morgan Stanley Dean Witter, San Francisco,
reiterated its "Strong Buy" rating on shares of Intel (stock: INTC), Santa
Clara, Calif.
"While Intel's third-quarter results are clearly a disappointment, they will
still end up being on par with what has historically been viewed as a normal
third quarter," wrote Morgan Stanley Dean Witter analyst Mark Edelstone in a
research note on Sept. 22. "More significantly, we continue to believe that the
current weakness in the DRAM market is related to PC demand and not to a supply
shock in DRAMs."
Due to the lower PC demand, Edelstone predicts DRAM ASPs will dip by 50 cents to
$7.50 for the forthcoming November quarter, matching Merrill Lynch's Osha.
SG Cowen & Co., Boston, reported that the firm expects Micron management to
predict November ASPs to average $7.60, a slight increase over a September ASP
of $7.25.
Warburg expects fourth-quarter DRAM prices to be about $8, a temporary pricing
plateau before a DRAM oversupply drags down average-selling prices to $5 in the
first quarter 2001.
"We are cautious on the near-term fundamentals of the PC market, especially in
light of Intel's Q3 pre-announcement," wrote analyst Greg Mischou in a note on
Sept. 22.
"Although we expect a seasonally stronger Q4, we see very little concrete
evidence to suggest that Q4 will surprise us on the upside, and we view macro
issues such as oil prices and decelerating GDP growth as potential risks to
near-term PC demand worldwide," he continued. "We believe that these concerns
will most likely keep pressure on MU stock in the near-term."
Micron's stock closed at 43 3/16 Wednesday, up 13/16 for the day.
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