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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: Dave Gahm who wrote (42351)	1/20/1999 6:19:00 PM
From: Thomas G. Busillo	Read Replies (1) \| Respond to of 53903

Dave, another bit of smoke and mirrors on the earnings release. Let's start right at the top. Literally. Literally the very top line of the consolidated financial statements accompanying the earnings PR 12-23-98. I've been sitting here looking over Niles' report. There's a discrepancy between what he attributes to semiconductor memory products and what shows up on the 10-Q. $18.6 million to be exact. So, is it that Niles is THAT bad? No. Look at what he was given to work with. From the data given on the earnings release: SELECTED RESULTS OF OPERATIONS QUARTER ENDED 12/3/98 11/27/97 9/3/98 Net sales (1) Semiconductor memory products $428.1 $440.1 $372.4 Personal computer systems 352.1 445.1 307.9 Other 13.4 72.1 11.8 Total net sales 793.6 957.3 692.1 That footnote (1) reads as follows: (1) The value of the Company's semiconductor memory products included in PC systems and other products is included under "Semiconductor memory products." "Other" revenue in the first quarter of 1998 includes $60.6 million in revenue from contract manufacturing and module assembly services, which was sold in the second quarter of fiscal 1998. On the surface, you'd think the first sentence is far more important than the second in answering the question of the discrepancy. It's not. In some respects, we get more out of the 2nd. From the 10-Q: SALES First Quarter 1999 1998 Net sales % Net sales % --------- ------ --------- ------ Semiconductor memory products $ 409.5 51.6 $ 440.1 46.0 PC systems 352.1 44.4 445.1 46.5 Other 32.0 4.0 72.1 7.5 --------- ------ --------- ------ Total net sales $ 793.6 100.0 $ 957.3 100. Net sales of "Semiconductor memory products" include sales of $10.3 million and $12.4 million in the first quarters of 1999 and 1998, respectively, of sales of MTI semiconductor memory products incorporated in MEI PC products. "Other " net sales for the first quarter of 1999 include revenue of $18.6 million for test and assembly services performed by the Company. How about that, the discrepancy between the consolidated financial statements accompanying the earnings release showing $428.1 mil in net sales of "semiconductor memory products" and the 10-Q showing $409.5 mil in sales "semiconductor memory products" for just happens to be exactly $18.6 mil. The 10-Q just happens to make a reference to $18.6 mil. for test and assembly services performed by MU classified as "other". So, when you note that $18.6 mil. has suddenly disappeared from the $428.1 mil. in sales of "semiconductor memory products" (as given on the earnings release) only to show up as "other" on the 10-Q AND we get this additional clarification right underneath it that, oh by the way, we just happened to have $18.6 mil. "for test and assembly services", what other reasonable conclusion is there other than to say that $18.6 million "for test and assembly services" were part of the $428.1 in sales shown for "semiconductor memory products" in the earnings release data? So, for the purpose of the 10-Q Micron chose to take the $18.6 million classified under "semiconductor memory products" in the earnings press release and classify it under "other". Interesting. Two directions to take it from there. The first would be that since Micron themselves has chosen to take the effort to specify the fact that $60.6 million in revenue from contract manufacturing and module assembly services from the contract manufacturing ops. 1Q'98 falls into "other", they do understand some distinction between such things as "module assembly services" (and let's just note that last word - SERVICES) are not to be confused with "semiconductor memory products". And yet in comparing the 10-Q to the earnings release we see that a portion of revenues classified on the earnings release as "semiconductor memory products" certainly appear to have included "revenue of $18.6 million for test and assembly services performed by the Company". I don't think there's any other way to read it based on the data. So, I ask you, why would "module assembly services" (performed in 1Q'98) and "test and assembly services" (performed in 1Q'99) deserve entirely different treatment on the same page of financial data two columns away from each other? On the 12-23-98 doc. module assembly services performed by the contract ops. are treated as "other". Yet, "test and assembly services" seem to have fallen under "semiconductor memory products". The fact that one may have been done by their contract mfg. ops. and the other by MU, IMHO that's irrelevant in terms of the classification. This is a consolidated financial statement. Either they are "semiconductor memory products" or they aren't, right? And it seems that whoever prepared the 10-Q would seem to not only agree, but would also seem to have concluded that they were not "semiconductor memory products", right? The number did move. In fact, let's throw out this point about them having made a somewhat similar distinction on the same document. Why does it appear that $18.6 mil. in test and assembly services were considered sales of "semiconductor memory products" for the purposes of the earnings release? Were they really "semiconductor memory products"? And it seems that whoever prepared the 10-Q would seem to have concluded that for the purposes of that federal filing - "no." Right? The number did move. The number was exactly $18.6 mil. And $18.6 mil. was exactly the amount they stated was for test and assembly services under "other", a line that just happens to be exactly $18.6 mil. heavier in the 10-Q than in the earnings release. Now perhaps we will never know the EXACT nature of these "test and assembly services" for 1Q'99, but let's give it a shot. Who were they for? It wasn't the contract ops. doing it for a third party; they were sold. So, are we to understand that Micron has a bunch of engineers in a Winebago who traverse the country (or other countries, perhaps) looking to perform "test and assembly services". A sort of Micron- subsidized "test and assembly" Good Samaritan Squad? No. Is Micron out there performing "test and assembly services" for their competitors? Unlikely. Who would these "test and assembly services" have been performed for? I believe the following line from the 10-Q sheds some light on the subject: Product purchases from the JVs aggregated $46.1 million in the first quarter of 1999. The Company performed assembly/test services for the JVs totaling $12.9 million for the first quarter of 1999. I think it's reasonable to infer on that basis alone that the $12.9 million stated here as "assembly test services for the JV's" is some portion of the "revenue of $18.6 million for test and assembly services performed by the Company". However, let's look at it another way. If you go back to the financial statement on the earnings release, you will see "other" shows $13.4 million 1Q'99, $11.8 million 4Q'98 and $11.5 mil. 1Q'98 (after taking out the $60.2 for the contract ops. 1Q'98). They didn't have the JV's in 4Q'98 or 1Q'98, yet $11.5 and $11.8 represents some unspecified activity. I'd argue the $13.4 mil. represents the same type of activity and more importanly, the same general revenue level. A noticeable pop comes on the 10-Q, when $18.6 mil. shows up under "other", causing it to jump from the range of $11.5-$13.4 mil. to $32 mil. It is stated in another part of the documents that $12.9 mil. went to test/assembly or the JV's. This was the first Q they had the JV's. So, given what we have to work with, I don't think it's a reasonable inference. If this is line of reasoning is correct (I think it certainly makes sense, but only MU and its auditors would know for certain), if you are willing to believe based on the above that there seems to be a strong likelihood that the shifting $18.6 million between the 12-23-98 document and the 10-Q includes $12.9 mil. in test/assembly services performed for the JV's.. ...then go back and look at the top line number on the consolidated financial statements accompanying the earnings release - $428.1 mil. net sales "semiconductor memory products". ...how sound is that number? How sound is that when you consider how the JV's are structured? MU BUYS their output. Does that help answer the question as to how two separate analysts (Dan Niles and Tom Kurlak), both with two diametrically opposed opinions on the stock, can put out research showing that bit shipments grew rather than declined? I believe it does. Does that explain how Dan Niles can states $428 mil. as "semiconductor revenues" and the 10-Q can state them as $409.5 mil? I believe it does. But I'm still not a fan of the guy <g> Good trading, Tom