Micron misses 2Q mark Computer memory-chip maker hurt by lower-than-average selling prices NEW YORK (CNNfn) - Micron Technology Tuesday reported a fiscal second-quarter profit that fell well short of Wall Street's expectations, prompting after-hours traders to further punish its already beaten-down stock.

The Boise, Idaho-based computer memory-chip maker said its net income for the quarter ended March 2 was $161 million, or 58 cents per diluted share. Analysts polled by earnings tracker First Call had expected Micron to turn a profit of 74 cents per share during the quarter.

Sales during the quarter came in at $1.4 billion, up 35 percent from $1 billion a year ago but down 14 percent from the fiscal first quarter this year, the company said.

Micron shares fell 15-3/4, or 11.6 percent, to 119-7/8 in New York Stock Exchange trading ahead of the earnings release Tuesday. Shares fell to 116 in after-hours activity.



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However, Tuesday's losses erased only a small portion of the stock's recent gains. In the past 30 days, Micron shares have surged more than 79 percent from 64-1/2.

In a conference call with analysts Tuesday evening, Micron (MU: Research, Estimates) executives said that the shortfall was due in part to reduced average selling prices for its core dynamic random access memory (DRAM) products.

"Pricing was approximately 20 percent lower due to relatively weak demand for memory in the early part of the year," said Wilbur Stover, Micron's chief financial officer.

Because of the lower selling prices, the gross margin in Micron's semiconductor operations fell to 41 percent, compared with 58 percent in the first quarter, Stover said.

Micron executives blamed the drop-off in demand for DRAM in large part on business customers who deferred spending due to the millennium change over. However, the company said that it is beginning to see a turnaround in the demand picture.

"These issues are now behind us, and we are seeing demand reaccelerate to levels not seen since last fall," said Michael Sadler, Micron's vice president for sales and marketing said in a conference call Tuesday evening. "We are seeing robust demand continue through the early part of the current quarter."

Meanwhile, Sadler pointed out that while the most recent quarter was a challenging period for Micron overall, sales of memory upgrade products through its Crucial Technology division increased 30 percent for the quarter.

"We believe the broader market contracted during the same period," Sadler said. Micron, which used to sell its DRAM chips to memory module makers, established its own memory module division last year.

Although executives painted a fairly positive picture of the company's prospects moving deeper into the fiscal year, and several Wall Street analysts have recently issued favorable market reports on the company, not all observers are as bullish on the company.

Bank of America Montgomery analyst Rick Whittington on Tuesday characterized Micron as "the best company in the DRAM business," but pointed out that they are operating in an increasingly competitive environment where there is a looming supply glut.

"Although I'm extremely bullish on the chip segment, Micron is the one stock I'm not recommending," Whittington said. "I think they're going to have to tread water until they can demonstrate that they are able too increase their profitability. Right now it looks to me like there's too much DRAM supply."

The company also faces increased competition from Korean DRAM vendors Samsung Electronics and Hyundai Electronics, which have benefited from an economic recovery there, as well as Infineon Technologies (IFX: Research, Estimates), which German conglomerate Siemens AG spun off and took public just last week, Whittington noted.

"Micron is the best company in the DRAM business, bar none, in my mind," he said. "But they're in a very competitive environment where memory is growing fast, but it's not growing faster than the supply. So I think profit margins are going to be thinner over the next six months than anyone would have thought three or six months ago."

For the six months ended March 2, Micron said its net income was $502.6 million, or $1.77 per diluted share, compared with a net loss of $23.7 million, or 9 cents per diluted share during the same period a year ago.

Sales during the first half of its fiscal year came in at $2.98 billion, compared with $1.82 billion during the first half of fiscal 1999, Micron said.

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