quarterly results will come and go in a flash this week, but the comments company executives make could have lingering effects on how investors view the chip and personal computer sectors.
After Micron reports results Thursday afternoon for its fiscal third quarter that ended in May, executives will hold a conference call during which analysts and investors will search for clues about the memory market, which in turn could tell them not only about Micron but also about chipmakers like
and PC makers. For Micron itself, the concern is that analysts will have to take their estimates down even further.
So far, it doesn't look as if there's much in the way of a recovery. In fact, there's little more than historical evidence to support the notion of a second-half rebound, and prices in all PC-related businesses are under pressure. Like other memory makers, Micron has been hard hit by declining dynamic random access memory, or
DRAM, prices, which have fallen to a fraction of what they once were. In recent weeks, analysts have increased the size of the losses they expect from the company in the fiscal year ended August 2001. Now it looks as if it'll be fiscal 2002 before Micron returns to the black.
Of course Micron has been struggling with lower selling prices, declining profit margins and weak demand for its products since last year. And, after divesting its low-cost PC operations last quarter, it derives almost all of its revenue from either DRAM or flash memory. (The company also has a small Web-hosting business.) Memory is used in everything from PCs to personal digital assistants, products that haven't exactly been flying off the shelves in the past year. That has created unusually large inventories at Micron, and it seems that the company could have to take a writedown in the fiscal third quarter.
At this point, Wall Street isn't expecting much. The consensus estimates have been falling for the past five weeks and dropped a penny this week. According to
Thomson Financial/First Call
, analysts expect a loss of 14 cents a share for the third quarter and a loss of 3 cents a share in the fourth quarter. But some estimates are much lower. On Monday,
said it expects the company to post a loss of 27 cents a share in its third quarter and a loss of 6 cents a share in the fourth quarter. (Merrill hasn't done any underwriting for Micron.)
Merrill Lynch analyst Joe Osha's low expectations are largely due to what now seems to be the never-ending decline in memory prices.
The price of synchronous DRAM, or SDRAM, for instance, which accounted for 47% of sales in the fiscal second quarter, fell in April and May, after recovering slightly in March. SDRAM products that sold for more than $15 last fall are now selling for slightly more than $2 on the spot market. Prices based on contracts are higher, though only above $3. Overall, the company's average selling prices fell by 53% in the second quarter from the previous year.
Osha also said the company is likely to take an inventory writedown this quarter. Inventories that seemed to be improving earlier in the quarter have begun to rise again in the past month and will probably come in at about $1.41 billion, flat from the fiscal second quarter, he said. Because some of that DRAM went onto the balance sheet at $7 to $8, Osha said the company could take a $300 million to $400 million writedown.
Indeed, Osha isn't a lone voice on this matter. About two weeks ago,
analyst Dan Niles said in a research note that he expected Micron to be among one of the DRAM makers that has to write down its inventory because of the decline in the price of DRAM. (Lehman hasn't done underwriting for Micron.)
And Niles, who turned bearish last fall on chips, threw more cold water on the sector this week. Wednesday he cut numbers for Intel and
Advanced Micro Devices
, citing growing PC inventories, lower flash memory prices, lower PC prices and foreign currency declines. (Lehman hasn't done recent underwriting for Intel or AMD.)
With the year's second half now just days away and the recovery in the personal computer market still very much in question, the chances of a rebound in memory prices, and an increase in Micron's stock price, seem less and less likely.