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Micron announces cost control measures

Posted: 06 Oct 2008     Print Version  Bookmark and Share

Keywords:oversupply  price degradation  chip memory  DRAM 

Micron Technology Inc. has announced some cost control measures after reporting a Rs.6,881.70 crore ($1.6 billion) loss for its fiscal year ended Aug. 28, but conceded that it faces ongoing challenges in a memory market plagued by oversupply and price degradation.

Micron announced a 20 per cent reduction in salaries for senior executives. As predicted, the company also lowered its capital expenditure plans for fiscal 2009, saying it would spend about Rs.4,301.06 crore ($1 billion) to Rs.5,591.38 crore ($1.3 billion), down from a previous budget of Rs.6,451.59 crore ($1.5 billion) to Rs.8,602.12 crore ($2 billion).

The Rs.6,881.70 crore ($1.6 billion) net loss for fiscal 2008 came on revenue of Rs.24,946.15 crore ($5.8 billion), up from Rs.24,516.05 crore ($5.7 billion) in fiscal 2007, when the company posted a loss of Rs.1,376.34 crore ($320 million). The company posted a fiscal fourth quarter net loss of Rs.1,479.56 crore ($344 million), more than twice the Rs.679.57 crore ($158 million) loss posted in the same period of 2007. Revenue from DRAM and NAND flash products declined sequentially as DRAM bit volume slipped and NAND ASP declines of about 20 per cent offset production cost reductions of about 15 per cent.

The results disappointed Wall Street, which had expected a smaller loss for the quarter.

Micron claimed progress on cost reductions but attributed the losses to market conditions. The chip memory sector remains mired in a prolonged downturn, with average selling prices (ASPs) for both DRAM and NAND flash memory parts declining rapidly. Analysts had been projecting growth for NAND before the market collapsed in the second half of the year, while spot pricing for DRAMs hit a 52-week low during the middle of September.

Micron said DRAM ASPs were relatively flat during the quarter ended Aug. 28, but that NAND ASPs declined about 20 per cent. Since the quarter closed, NAND ASPs are down 30 to 35 per cent and DRAM ASPs are down 15 to 20 per cent, executives said.

Due to a sharp decline in ASPs during the last half of the quarter, Micron wrote down its memory inventory by Rs.881.72 crore ($205 million) to bring it in line with estimated market value, said Ronald Foster, Micron's chief financial officer.

Analysts paint a bleak picture of the market. Gartner Inc. forecasts the overall chip memory market to decline 6.3 per cent this year, with NAND revenue down 10.1 per cent. IC Insights Inc. predicts DRAM and NAND revenue declines of 4 per cent and 14 per cent, respectively, in 2008.

To make matters worse for Micron, demand for PCs, which had remained steady throughout the year despite economic uncertainty, appears to be waning. Dean McCarron, principal of Mercury Research, is predicting "unseasonable" PC growth of 0 to 5 per cent for the fourth quarter. The PC market remains Micron's biggest overall business segment.

On an analyst conference call following Wednesday's financial announcement, Mark Adams, Micron's VP of sales, said desktop PC sales show some signs of weakening demand going into the holidays, but that the notebook segment continues to be strong.

Executives said they are anticipating softer holiday season PC demand than they did originally. Micron had expected modest PC growth of up to 10 per cent for the calendar Q4, but now believes demand will be flat, give or take one or two per cent.

PC demand has really dropped off in the past month, said Steve Appleton, Micron Chairman and CEO. "We don't know if that's going to be sustained, but clearly I think the PCs OEMs felt like they had enough inventory risk and didn't want to carry more inventory as they move into the holiday season, figuring it would likely be weak," Appleton said.

Appleton said he did not know if retailers would offer the cut-rate prices on PCs that have been seen in previous "Black Friday" sales leading into the holiday season. "I'm not sure the price will be a useful tool to drive additional unit sales and [retailers] may choose to play a margin game coming into the holidays," Appleton said.

Following the analyst call, Doug Freedman, who follows Micron for American Technology Research, said he was concerned about executive comments indicating that declining prices may not drive bit growth. "It's a very concerning metric," Freedman said.

Micron did not comment on widespread speculation that it may but all or part of troubled German DRAM supplier Qimonda AG. But Appleton did say that industry consolidation and DRAM production reductions such as last month's news that Hynix Semiconductor Inc. would shutter 200mm fabs and reduce overall DRAM production capacity bodes well for the industry.

Appleton said he expects further consolidation and capacity reduction in the next two to three months. Micron executives noted that the current market environment is putting huge pressure on some of players in the space.

"I haven't seen capacity come off line in this short of period of time at the rate we are seeing these announcements right now and at the rate we are likely to continue seeing them, maybe in my history of being in this business," said Appleton, who has been with Micron since 1983. "There are some pretty dramatic changes going on."

Appleton said most people expect DRAM production bit growth of only 35 to 40 per cent next year, which would be low by historical standards and the lowest in the industry since 2003, according to data provided by IC Insights. DRAM bit production grew 83 per cent in 2007, according to IC Insights, which projects bit volume to grow 58 per cent this year.

Micron said it expected its joint venture partners to contribute about 15 per cent of the Rs.4,301.06 crore ($1 billion) to Rs.5,591.38 crore ($1.3 billion) capex for 2009. About 15 per cent of the 2009 capex budget will be allocated to Micron's NAND flash joint venture with Intel Corp., IM Flash Technologies LLC, Micron said, with about 30 per cent going towards subsidiary Tech Semiconductor Singapore Pte. Ltd. and 45 per cent going towards Micron's other activities, the company said. The planned IM Flash fab in Singapore remains delayed and will not be equipped during 2009, Micron said.

Micron and its partners spent a total of Rs.12,473.08 crore ($2.9 billion) on capital expenditures in fiscal 2008, and Rs.17,634.35 crore ($4.1 billion) in fiscal 2007, the company said.

The company said it remains on the hook for Rs.2,004.29 crore ($466 million) in capital contributions to MeiYa Technology Corp., its joint venture with Taiwan's Nanya Technology Corp. Market dynamics will dictate when those investments occur, the company said.

While revenue from Micron's NAND and DRAM products declined sequentially, sales of CMOS image sensors in the fiscal fourth quarter increased slightly and represented 12 per cent of the company's total sales for the quarter, Micron said. The company's CMOS image sensor unit, now known as Aptina, will begin operating as a wholly owned Micron subsidiary as of Oct. 3, the company said. Micron intends to look for a private equity deal to spin the unit off as a public company.

Adam said Micron continues to see growing demand for its more expensive DDR2 SDRAM products and expects wide adoption across computing platforms through the end of the year and 2009.

- Dylan McGrath
EE Times

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