***** ON TOPIC ******
Top Stories: Micron's Kocher Targets Big Boys
By Eric Moskowitz
Staff Reporter
12/1/98 10:15 AM ET
Make no mistake about it: Micron Electronics (MUEI:Nasdaq) is not ready to cede any ground to Compaq (CPQ:NYSE) in the direct-seller market.
Compaq recently made a big deal out of its direct-selling efforts to target the small-business segment. But Micron's CEO Joel Kocher is not impressed with the ad campaign.
"Have you seen it?" asks the fiery Kocher. "The advertising reads like a 1989 Dell (DELL:Nasdaq) ad."
He should know. Kocher was one of the brains behind Dell's ingenious marketing campaign directed at big businesses. That was then. Now, he may be taking on a bigger task: trying to out-Dell Dell in the small and midsized market. This market is getting crowded: In addition to Dell and Compaq, Gateway (GTW:NYSE) has also been after this business as of late. For Micron, a company still in the early stages of a new business strategy, this is going to be a tough battle.
Kocher -- who moved from Dell's Austin, Texas, confines to Micron's Nampa, Idaho, headquarters in January 1998 -- has been spending more time getting Micron to work more efficiently rather than worry about competitors. So far, Kocher has sold off 90% of the company's custom-manufacturing unit to focus more on PC operations and sales. Micron raised its gross margins from 14% this past February to 18% and cut its days of inventory from the mid-30s to 10, only two days behind the master of efficiency, Dell.
Micron earnings probably can't get much worse. For its last fiscal year, which ended Sept. 3, it recorded a loss of 13 cents a share, according to First Call, thanks to a one-time charge in its second quarter. Analysts estimate the company will earn 11 cents a share when it reports first-quarter earnings on Dec. 21 and eventually 64 cents a share for the whole year. "We believe the company's first quarter finished strong with units, average selling prices and revenue slightly better than anticipated," says Dan Niles, an analyst with BancAmerica Robertson Stephens, who rates the stock a buy. (His firm has performed underwriting for Micron.)
"Costs were grossly out of control, and we weren't price competitive," says Kocher, in an exclusive interview with TheStreet.com. Now Micron, which prides itself on its high-end PC models (much like Dell), has cut prices and is selling "online specials" to spur Internet sales. Dell, with its $10 million a day online sales (20% of total revenue) is clearly the role model here.
Kocher's moves have stabilized its rocky earnings record, but at the cost of falling revenue. "Our business has fallen off of late, but that was part of becoming profitable again," Kocher explains. Micron's revenue fell 11% to $1.7 billion last fiscal year, although in the last two quarters it fell by at least 33%.
Kocher admits getting the company back to profitability was the easy part. Now he needs to do what some skeptics say is next to impossible: build revenues and boost brand name to match rivals'. "Coming up with a brand proposition that is unique enough is going to be the key for Micron," says Lou Mazzuchelli, a hardware analyst with Gerard Klauer Mattison. (Gerard Klauer Mattison hasn't done any underwriting for Micron.)
Often Micron is mistaken for its big brother, Micron Technology (MU:NYSE), a mammoth semiconductor maker that spun off the PC maker three years ago but still owns 64% of it. When Kocher took over, he says he inherited a brand awareness ratio of 8% for Micron. By contrast, Compaq enjoys a brand awareness of 52%, and Dell has an awareness of 49%. As of the end of September, Kocher boasts, he doubled brand awareness to 16%.
The company also has relaunched its Web site and devised a new Internet-based service called Micron University that provides educational support to its customers. Are these strategies enough to stimulate buyers to move to Micron? "My answer would be no, but I have a feeling they aren't done yet," says one West Coast money manager who requested anonymity. "Kocher really knows how to play the PC game."
At November's Comdex gathering in Las Vegas, while other PC executives were busy pressing the flesh, Kocher was pounding the pavement, calling on small-business customers personally. "We were knocking people out of their chairs," states Kocher. "We want to give the same loving attention to this segment that Dell and Compaq give to Fortune 500 companies."
To build the brand, Kocher is hiring some of the best brand-building talent in the PC game. Micron's marketing director, Mike Rosenfelt -- the man behind some of the creative advertising of Mac clone Power Computing back in its day -- has pulled off one of the more ingenious moves yet. Micron stamped its new "Micron PC" brand on a college bowl game next month. While the move itself isn't unprecedented, Micron officials are on the verge of persuading college athletic officials to replace the coin toss with a game of "rock, paper, scissors" to promote its "New Rules, New Tools" advertising campaign, according to a Micron spokesperson. None other than The New York Times gave Micron some free publicity on the move.
Micron may just have the personnel in place to build its brand name, but it will need to do more to become an alternative to Dell, says Gerard Klauer Mattison's Mazzuchelli, to reinvigorate its slumping revenues. "Micron should want to be the guy that keeps Dell honest, because now if you call Dell, who else are you going to call?" At least for Micron investors, Kocher has the right credentials to put pressure on Dell.
AND .... just for entertainment:
As the market wallows in red ink today, can we remember a couple of reasons why we got here?
Wrong! Dispatches from the Front: Don't Miss Out
By James J. Cramer
12/1/98 8:37 AM ET
The whole thing was phony. The transports never confirmed it. Shorts squeezed the market up. It was a huge bubble, aided by the Fed's needless panic. It didn't belong above 9000 before and it does not belong above 9000 now. Hideous double top. The Net made us do it. Onsale.com (ONSL:Nasdaq) is right. Markdowns a-coming.
Okay, there. I did it. I articulated the whole bearish rap. Steel yourself. You will hear it so many times today that by the end of the day you will believe it. You will be the Manchurian Sell Candidate, brainwashed into believing that the rally wasn't powerful at all, chimerical yes, heavyweight no.
As the market wallows in red ink today, can we remember a couple of reasons why we got here? One is that the Fed took decisive action to make things better. That moved and can continue to move the market. Two is that interest rates are going lower, making bonds less competitive against stocks. Three is that earnings, which everyone tells you won't be there, probably will be there. East Asia is improving, despite what the dour-meisters might tell you.
These positives aren't going away. They will just be obfuscated by talking heads and columnists who are bent on telling you how you can't make money. Look, I am not against taking profits. I would still take profits in some of the less worthy Net stocks. I just don't want to give up on this market. That would be wrong. Steel yourselves. Opportunity is coming. Don't be blind to it. |
