Micron: Survival adds up to success in tough times

In a lot of ways, this year’s meeting of Micron shareholders was a re-run of its 2008 roundup: the memory market is in the tank, revenue is down and international competition gets fiercer by the day. But in a climate like that you take success where you can get it.

“We did have a lot of successes,” CEO Steve Appleton told shareholders on Dec. 10. “I don’t think there’s any question that one of them is simply surviving.”

While that might sound glib, the memory chip field has been littered with corpses over the past few years, including former German chip giant Qimonda and longtime Micron competitor Infineon. With the ranks of chipmakers thinned, Micron officials are confident the company is well placed for an upswing.

“We have just come through probably the worst period in the history of the memory business,” Appleton said. “…the fact that we survived and the fact that we’re here – we’re going to be a strong beneficiary.”

Ron Foster, vice president of finance and CFO of the Boise-based company, backed up his boss with a series of slides showcasing just how bad it’s been, but also how well Micron has positioned itself relative to its few remaining competitors.

While Micron’s gross margins are down about 10 percent, its numbers are the “best of the bunch,” he said, showing firms like Elpida, Inotera, Nanya, Powerchip and Promos taking far more significant dives.

Micron’s revenue fell 18 percent year-over-year as chip prices fell faster than the company could cut costs, but its cash flow from operations was still pegged at an industry-leading $1.2 billion. The next highest was Inotera, which Micron owns a 36 percent share in, with just under $400 million. Remaining competitors were almost all in the negative.

Finally, Foster said, Micron has a debt to capital ratio of just over 30 percent – the lowest of any global chipmaker – and has several times the amount of cash it needs to cover its next 12 months of debt obligations.

That relative stability is owed to a “significant focus on cost management throughout the year,” he said, including the closure of Micron’s 200 millimeter Dynamic Random Access Memory fabrication plant in Boise. The move, announced in February, meant the loss of about 2,000 jobs over the year.

Other cost management efforts included investment in research and development and accessing additional capacity through joint ventures.

Following Foster’s presentation, Micron President and COO Mark Durcan said the past year’s challenges have forced the company to become ever more international in outlook.

“Micron is probably at this point the most global memory manufacturer in the world and the most global semiconductor manufacturer in the world,” he said, making note of its fabrication plants in the U.S., Italy and throughout Asia.

“While Boise remains our home… we do have significant manufacturing operations around the world at this point,” he said. “All of this positions us extremely well.”

He added that’s especially true as customers migrate overseas and demand for memory products expands into new areas.

According to projections, by 2010 Micron will be doing more than three quarters of its business in the PC market, consumer electronics space and server market combined.

“We are no longer the PC-centric company that we were in the decade of the 90s. Today Micron products go into segments from automotive to networking to medical systems, server businesses, enterprise businesses and consumer oriented markets. We really have an extremely diversified portfolio,” he added, “[which is] the envy of our competitors.”

Micron’s global perspective is advantageous for another reason, Appleton said: It doesn’t have to wait for a turnaround in the U.S. economy before it can start seeing positive returns.

“We’re positive moving forward not only because there are less and less of us [in the market], but the fact of the matter is that Micron sells about 70 percent of its product outside the United States,” he said. “We can have a good result even though the U.S. economy is still struggling.”

As far as where that leaves Boise, Appleton reiterated the importance of Micron’s Treasure Valley headquarters but didn’t offer any specifics on what might replace 200mm DRAM production.
 
The company has talked about getting into the solar panel market, manufacturing light-emitting diodes or working in the small-scale projection arena, but “we really need those to mature and become large products in the marketplace before we can fully utilize the investment we’ve made here,” Appleton said.

“We still have to have a good business environment for Micron to operate in this country,” he added.

When asked what shareholders can do to help keep Micron competitive in the United States, Appleton said they should work with policymakers to ensure the climate remains conducive to business.

“We’ve just gone through a tremendous amount of suffering, but by virtue of making it through that… we’re going to benefit from that greatly moving forward,” he said.