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Micron’s Challenges

Posted on Monday, Apr 14th 2008

In an earlier post, I had looked at Micron’s prospects with the iPhone design win for its imaging chip. And just last month, Micron launched a separate division for its CMOS imaging business, Aptina Imaging that will provide it with more manufacturing flexibility. It also launched a new 9MP image sensor.

On the DRAM memory front, Micron last month entered into a preliminary agreement with Taiwanese company Nanya to form a joint venture to save on the production costs for DRAMs.

Last week, Micron Technology Inc (NYSE: MU) released its earnings for Q2 2008. Q2 revenue was $1.4 billion, down 4.7% y-o-y and 11% sequentially mainly due to lower selling prices partially offset by increased production of memory products. DRAM and NAND product ASPs decreased sequentially by 15% and 30%, respectively and y-o-y by 60 and 70%, respectively.

Net loss was $777 million or $1.01 per diluted share including a goodwill write-off of $463 million. Net loss in the previous quarter was $262 million or $0.34 per diluted share. Non-GAAP net loss was $314 million or $0.41 per diluted share.

On the brighter side with increased output from its 300nm operations, Micron was able to reduce its per megabit costs by about 15% and 25% for DRAM and NAND Flash products, respectively, compared to Q1 2008.

However, the NAND flash market is expected to grow in single digits in 2008. In Q4 2007, global NAND revenue declined by 2.4% to $4.1 billion. Apple, which was the third largest OEM buyer of NAND flash in 2007 with purchases of $1.2 billion, has slashed its 2008 NAND order forecast. As a fallout, Micron is reportedly pushing out the production of a proposed fab in Singapore. This delay might improve the supply-demand scenario a bit.

Its stock is trading around $6.83 with a market cap of around $5.3 billion. It hit a 52-week low of $5.42 on March 28 compared to 52-week high of $13.88 on July 11, post the iPhone launch.

Part of the problem Micron faces is its heavy concentration in the DRAM and NAND businesses, which are both commodity, and extremely sensitive to supply-demand variances. The reason the Image Sensor business is attractive is it starts to move the company to a more differentiated product portfolio, a challenge that Micron will need to take on over the next phase of its evolution.

Chart for Micron Technology Inc. (MU)

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[…] Micron has a separate division for its CMOS imaging business, and CMOS image sensor sales increased 27% sequentially to account for 11% of total sales. Clearly, this percentage needs to increase for Micron to sustain itself in the fickle NAND/DRAM market. […]

Micron on Shaky Ground - Sramana Mitra on Strategy Monday, July 7, 2008 at 6:22 AM PT