Aren't they just stating the obvious?
Weak PC demand could hurt DRAM sales, warn analysts
By Bolaji Ojo and Andrew MacLellan
Electronic Buyers' News
(10/09/00, 09:25:43 AM EDT)
NEW YORK -- The latest forecasts for the DRAM and PC manufacturers isn't good despite last week's news of strong quarterly profits at Micron Technology Inc. In fact, the outlooks are "murky," "troubled," and "cautionary," according to industry analysts.
For the DRAM market and especially Micron, Samsung, and Hyundai, which together account for about 70% of the global market, this dire prognosis could spell trouble for the next few quarters even if it proves only half true.
Behind the pessimism gripping the industry is a weak PC market; slowing corporate as well as consumer PC purchases in Europe; and persistent concern that the traditionally strong end-of-year sales in North America may flop just like the back-to-school season did in September.
"There are serious concerns for DRAM suppliers moving ahead, and a lot will depend on whether PC demand recovers before Christmas," said Jamie Stitt, director of business development, DRAM products, at the semiconductor group of Toshiba America Electronic Components Inc. in Irvine, Calif. "There was an artificially rosy picture for DRAM heading into the fourth quarter, and now during the last few weeks we've been seeing downward pressure as the PC market slows down."
Only a few months ago, the DRAM market appeared headed for a solid second half in 2000. Forecasters spoke of shortages, firming prices, and higher capital expenditures as suppliers prepared to meet 2001 demand.
Only a third of that dream is alive today despite Micron's outstanding results reported this week. The Boise, Idaho, company ended its fiscal fourth quarter with net income of $727 million, or $1.20 a share, vs. a loss of $17.4 million, or 3 cents a share, in the comparable 1999 period. Revenue rose to $2.6 billionduring the quarter ended Aug. 31, from $1.1 billion in the year-ago quarter, lifted by its semiconductor operation, which nearly tripled to $2.3 billion from $820 million (see Oct. 4 story).
"We are very proud of our execution," said Steve Appleton, president and chief executive officer of Micron. "This was a strong quarter and an exceptional year for Micron Technology."
So, why did Micron's stock price fall 13% on Thursday to $41, and 58% below the 52-week high of $97.50?
Micron stock was hit by a storm the company couldn't control, analysts said. The bad weather first emerged in September when Intel Corp., in Santa Clara, Calif., warned its third-quarter revenue would not meet expectations because of lower PC sales in Europe. Subsequent similar announcements by Apple Computer Inc. and Dell Computer Corp. have painted a bleak picture of sliding demand for computers, analysts said.
"Although the DRAM supply picture looks reasonable given that higher PC OEM inventory levels have been burning off for about the last six weeks ... the demand picture is more murky in light of Apple's, Dell's, and Intel's pre-announcements," said Eric Rothdeutsch, an analyst at Robertson Stephens Inc. in San Francisco.
Industry executives and analysts said the DRAM market got squeezed in the big letdown of lower-than-anticipated back-to-school sales after padding inventories. "Some of the presumed strength in the quarter [was] actually a result of buildup of DRAM inventory in anticipation of a supply shortfall," said Michael Sadler, vice president of sales and marketing at Micron. "The back-to-school demand, while significant, did not meet some lofty expectations and, as a result, we observed some select inventory liquidation in the broker channel."
At Infineon Technologies AG, Jan Du Preez, president of the German company's North American operation, acknowledged the industry faced pricing pressures arising from supply and demand imbalance, although he predicts the industry will expand about 17% in 2001.
But that conservative growth estimate is proving too optimistic for some industry executives. Toshiba's Stitt, whose company shifted from the price-sensitive low-end PC segment into the high-end server and PC market two years ago, is concerned the upswing Du Preez expects may not materialize.
According to Stitt, the consumer-PC market was hit by softening demand, at least in part because of the lack of compelling new features that have attracted back-to-school buyers in years past.
At the same time, a lack of new software and a lukewarm market reception to the Windows 2000 operating system triggered little consumer or corporate demand for memory-enriched PCs. The net result was a roughly 25% reduction in average Mbytes shipped in PCs from the second to the third quarter, Stitt said.
What happened since June is history. The more important question now is: where is the DRAM market headed in 2001? This will likely be determined by the PC sector, which a forcast from International Data Corp. in Framingham, Mass., said will grow 19% in 2000 before sliding to 17% in 2001. The fate of the PC market is unclear, however.
While Boston-based SG Cowen Securities Corp.'s Richard Chu said he sees continued softness in Europe and the small-company markets, Micron's Sadler said his company is looking for a boost in the holiday season as the high DRAM inventory level falls to a "comfortable level in broker and OEM channels." To emphasize its confidence in the DRAM market, Micron said it will increase its fiscal 2001 capital spending by 64%, to $2.3 billion from $1.4 billion in 2000. The company plans to keep investing in double-data-rate DRAM, which it sees as a successor to PC100 and PC133 in graphics and most memory applications.
"Beyond this, we don't see any other alternative technology gaining traction in the marketplace," Sadler said. |
