Micron Inks Deal to Supply Chips to Compaq - TheStreet

Micron Inks Deal to Supply Chips to Compaq

In related news, Compaq has fallen further behind Dell in U.S. personal computer sales.
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Micron Technology

(MU) - Get Report

will supply

Compaq Computer

(CPQ)

with a steady stream of memory chips as part of a multibillion-dollar contract announced late today.

Neither side would discuss the financial terms of the five-year pact, which reportedly was worth $20 billion, but a Compaq official did not object to that figure.

"We aren't disclosing a volume but I wouldn't argue with that," said Alan Hodel, a Compaq spokesman, when asked about the deal's price tag, while adding that the deal ensures that the company's customers will receive the same performances and reliability from PCs.

Micron has been a memory chip supplier to Compaq for several years, but this deal makes Micron the largest single chip provider for the Houston-based company, and nearly the majority provider for Compaq's components.

"From our perspective, it's very difficult to make a prediction on the volume because of the volatility of the DRAM market," said Julie Nash, a spokeswoman for Micron, which is based in Boise, Idaho. "Suffice it to say, we believe this is a significant deal."

The deal was announced after the stock market closed. Micron's stock ended trading down 1 3/4 to 61 7/8 while Compaq's stock closed up 1/4 to 18 15/16.

Analyst William J. Milton of

Brown Brothers Harriman

said he found the timing of the deal "very interesting" because Micron's relations with

Dell

(DELL) - Get Report

, a long-time buyer of Micron's chips, appear to be "strained." That may have changed three weeks ago when Micron increased the cost of its chips toward the end of Dell's fiscal quarter, which forced Dell, also a major PC maker, to issue a warning to investors on Oct. 18 that it would fail to meet expectations.

"To hit a preferred customer with a 25% jump at the end of the quarter?'' wondered Milton, who gives Micron and Compaq a neutral rating. His firm has not done underwriting for any of the involved companies. "I think it's foolish. They are taking advantage of Dell."

A Dell official who spoke only on condition that he not be identified said his company continues to have a solid relationship with Micron, and he was not surprised that the two had entered into a long-term agreement because more companies are completing similar deals.

Since issuing the warning last week, Dell's stock has fallen more than 5 points, closing today at 39 3/16, down 5/8 on the day.

"I hope Compaq has a little better luck than Dell," Milton said. "Maybe they're making a pact with the devil."

In related news, Compaq, which is scheduled to release its quarterly earnings report Tuesday, has fallen further behind Dell in U.S. personal computer sales. Two research firms said Monday that Dell, based in Round Rock, Texas, sold nearly 2 million PCs in the last quarter, while Compaq sold 1.8 million.