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Micron remains profitable despite drop in memory prices

Micron Technology Inc. stayed profitable during the first quarter of its fiscal year despite a steep drop in memory prices, though the company’s earnings fell by half compared to a record-setting pace last quarter.

The Boise-based semiconductor company earned $155 million, or 15 cents per share, during the quarter that ended Dec. 2. That compares to a profit of $342 million, or 32 cents per share last quarter, and $204 million, or 23 cents per share, in the same quarter a year ago.

Average selling prices of DRAM products, the primary memory in personal computers, dropped 23 percent in the quarter, and revenue from sales of DRAM declined 19 percent. Prices of NAND Flash, which is found in mobile devices, dropped by 15 percent but was offset by a 20 percent rise in sales volume.

During a conference call with analysts, Micron CEO Steve Appleton predicted three to six more months of lower memory prices, though he said the company is well-positioned to keep making money. Micron has been diversifying its product lines and moving beyond DRAM, which accounted for less than 50 percent of revenue for the first time in the company’s history last quarter.

“It’s worth pointing out that the majority of our competition is not in very good shape financially with their balance sheets,” he said. “We’re [one of] the ones that are in good financial shape. … We have a course set. We’re in great shape financially to pursue that course.”

Investors did not cheer news of the results. Shares of Micron stock (NASDAQ: MU) fell to $7.94 from $8.28 in after-hours trading Dec. 22, compared to a one-year range of $6.36 to $11.40.

Dave Petso of Boise-based Petso Financial Consultants said Micron should have been able to cut production costs more to counterbalance the price declines.

“Financially, Micron is in a very strong competitive position,” he said. “The disappointment now is in their execution in manufacturing. If they can get on top of the manufacturing, that’s what would really make them fly at this point.”

William Dezellem, chief investment officer and president of Yakima, Wash.-based Tieton Capital Management, said the results should be put in perspective.

“We’re talking about profits, not a loss, after pricing has been kind of weak,” he said. “That’s a totally different scenario when things are weak and we’re talking about a massive loss.”


About Simon Shifrin