Micron Assures Channel Despite First-Quarter Loss

"The combination of industry oversupply and the overall global economic crisis continues to put pressure on Micron and our competition," Ronald Foster, CFO, said in an analyst conference call.

Micron reported on Tuesday a net loss of $706 million for the three months ending Dec. 4, compared with a loss of $262 million for the year-ago first quarter.

Micron also said that given the challenging market environment, it has undertaken additional cost-saving measures, including reductions in executive and employee salaries and elimination of bonuses, a continued hiring freeze and reduction of other discretionary costs. The actions are anticipated to save an additional $200 million of manufacturing and operating cash costs.

Micron said it is seeing a growing demand for its DDR3 product with shipment growth of 96 percent quarter over quarter.

Micron's server and networking shipments were flat quarter over quarter, but the company said it remains optimistic that it can increase its leadership position in these segments due to competitive reduction in output for these products.

The company also said that it sees a "bright spot" in its mobile segment -- shipments of MCPs (multi-chip packages) were 1.9 million units, an increase quarter over quarter, and the company said it anticipates increasing density per unit in this category to drive growth in 2009.

Micron's product portfolio in the mobile segment evolved in the second half of 2008, and the company said that it is in a "unique position to drive bits into mobile handsets with MCPs, embedded NAND technology and mobile memory cards."

"As we enter calendar year 2009, Micron is in a cost-leadership position, which translates into a stronger operating performance from our NAND business," said Mark Adams, vice president of worldwide sales.

Regarding the channel, Micron said that at a time when its channel competitors face "severe" challenges, it continues to see a "renewed confidence in Micron's commitment to the retail channel at major customers worldwide with the Lexar and Crucial brands," Adams said.

"The inventory position in the channel is quite favorable both in DRAM and NAND and actually we think that's very much connected to the activity of last week in the spot market," Adams said. "The dramatic increase in pricing on both DRAM and NAND to us was a pretty good indicator that people have been pretty prudent in planning their inventory going into the holiday season and even managing it through all the way up to where we are today."

Adams also said that a big question is about the demand profile that comes out of Christmas, as well as the inventories at the resellers and the retailers after the Christmas season.

"I think the indication that we got as of last week is that the inventories are pretty light, very light on NAND and I would say that from what we learned last week, equally light in the DRAM segment," he said.

The company also discussed its recent acquisition of Inotera Capacity, and said that the purchase shows that Micron can be a scale technology partner that serves a range of market segments.

Adams said that the timeline to incorporate Inotera involves transitioning wafers to Micron and other technology transitions that will happen on a graduated basis over the next nine months. Adams said that after nine months, Micron will be taking its full share, 50 percent of the Inotera output.

Regarding Inotera, Adams was asked about recognizing licensing fees as the technology converts.

"Well, we have a somewhat complicated relationship with our partners there and there are a couple of components to fee the transfers; some are more associated with the development cycle and those are ongoing and some are more associated with volume ramp and you would expect to see that portion of it increase more substantially as the volume begins to increase," he said.

Looking forward, Micron said its fiscal Q2 forecast for DRAM cost reductions is expected to be flat and that bit production will decline as a result of factory production slowdowns over the holiday season.

"NAND bit production in the second quarter is forecasted to decline as a result of factory slowdowns," said CFO Ronald Foster. "However, continuing cost reductions and the 34-nanometer node transition will improve cost per gigabyte despite the factory slowdowns."

Adams said that if there aren't any changes from now until the end of the quarter, the company expects it will be down "mid-teens on the DRAM side of the business and closer to down to high 20 percent to mid-30 percent in NAND," but that doesn't factor in the last week of activity in pricing, which he said has been quite favorable both in DRAM and NAND.

"We're hesitant to make too much of a conclusion on the uptick in DRAM pricing and NAND over the last five business days or so but certainly positive about it and want to stay on top of it going into the post-Christmas season," he said.