Analysts: Micron may turn corner 

Micron Technology, which had suffered 14 straight quarterly losses, racked up another one in the fourth quarter ending Sept. 3, but this time the results weren’t as bad as expected.

The Boise-based memory chip maker beat Wall Street estimates that it would shed 18 or 19 cents per share, reporting it lost $88 million on net sales of $1.3 billion, or 10 cents per share. Its fiscal 2009 year-end numbers were a loss of $1.8 billion on $4.8 billion in sales.

Those numbers show improvement from a year ago when Micron reported a $344 million loss on net sales of $1.45 billion – twice the decline it suffered in 4Q07 and more than three times the loss it reported in fourth quarter 2009. Fiscal 2008 saw a year-end loss of $1.6 billion on net sales of $5.8 billion, illustrating the impact of severe oversupply and price depression in the global market.

Now, news of the company’s not-as-awful-as-feared results has stoked optimism that a turnaround in the chip market is on the way.

“The market, while still challenging, is beginning to improve,” Micron Chairman and CEO Steve Appleton stated in the earnings release. “Micron has been one of the only companies in the industry able to generate positive operating cash flow every quarter during this downturn.”

The company generated $457 million in cash flow from operations during the quarter, and $1.2 billion for the year. It ended fiscal 2009 with $1.5 billion in cash and investments.

Jim Handy, a Los Gatos, Calif.-based semiconductor industry analyst with Objective Analysis, agreed that Micron’s recent performance was “a really strong signal” that things have been improving in the chip market, which had suffered from an industry-wide glut that drove prices into the ground.

“Typically what happens in memory markets is that they either go down or go flat. When they go flat it sets the stage for recovery, and that actually leads to profitability,” he said.  “There is some question as to which market is going to grow better – the NAND market or the DRAM market, but Micron’s in both of those so they can take advantage of both.”

At this point, it looks like DRAM – or dynamic random access memory – is leading the way. Micron reported revenue from DRAM sales rose 28 percent over the previous quarter, reflecting a 19 percent increase in sales volumes and an 8 percent increase in average selling price.

Revenue from NAND Flash products increased 10 percent in the quarter on a 23 percent boost in sales volumes, though that was partially offset by an 11 percent decrease in average selling prices.

Don Holley, chair of the Economics Department at Boise State University, agreed the chip market looks to be much stronger, but added larger economic trends seem to helping Micron out.  

“What’s happened, and it looks like it’s happened since mid-year, is that things seem to have bottomed out,” he said. “There are a lot of people who are becoming optimistic. The major economic forecasters are optimistic. Even [Federal Reserve Chairman Ben] Bernanke is saying that when we have enough time to look back on it … the economy probably bottomed out in the second or third quarter of 2009.”

Holley said while Micron’s improved performance is a glimmer of hope for the Boise economy, he thinks it’s too early to start cheering the recovery.

“I’m not prepared to say something like that. I don’t think the Boise economy has bottomed out yet,” he said. “This news from Micron is just one of the early signs [that things are improving].”

The Boise area has been hard hit by job losses, many of them stemming from Micron’s announcement a year ago that it would cut 15 percent of its global work force, and its subsequent decision in February 2009 to shutter its 200mm wafer fab in Boise and eliminate an additional 2,000 jobs.

While those moves certainly contributed to the Treasure Valley’s current seasonally adjusted unemployment rate of 9.8 percent – nine-tenths of a percentage point higher than the state figure – Holley and Handy both agreed Micron’s cost saving measures, while painful, have positioned it for future growth.

“They’ve been making brilliant decisions,” Handy said. “Closing down the 200mm fab in Boise was important. The cost to manufacture a given product is about 30 percent cheaper when you go to 300mm production. … Conversion to 34 nanometer [NAND] also not only got their costs down, but gave them a cost structure that’s way better than anybody else’s.”

Holley said,  “Without those costs they’ve got to be much better off today than they were even a few months ago. It’s always tough to lay people off. … But I haven’t heard any criticism from the industry.”

Referencing the struggles of Micron competitors like German chip firm Qimonda AG, which is currently in receivership, Handy said joint ventures with companies like Intel and Nanya, and acquisitions like Qimonda’s stake in Inotera, Micron has set itself up to capture a large share of the market.

“When a vendor disappears, it’s up to who’s most aggressive in expanding their capacity,” he said. “Micron is always very careful to watch out for a good deal.”

Looking ahead, Handy predicts bit growth for both NAND and DRAM products will boost Micron’s revenue anywhere from 40 percent for DRAM to 75 percent for NAND.

“It looks like we could have memory revenue growth in the 50 to 55 percent range next year,” he said. “Micron’s pretty well positioned for this whole thing.”

Holley wouldn’t hazard a prediction on where Micron might be in a year, but did share some guarded optimism that the company’s recently announced $5 million stimulus grant for the manufacturing of light-emitting diodes could be a good for Boise – in the short-term.

“The LED thing is promising, but it’s easy to see that if they develop the product here and the manufacturing process becomes routinized to the point where anybody can do it, then it’s easy to see them shipping off the production of these things to other parts of the world where it doesn’t cost as much,” he said. “From my guess it’ll be no more than a blip in the next couple years, then it’ll go the way of the computer chip.”

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