In Memory of a Mismanaged Market
By
Anders Bylund
December 24, 2008
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Sorry, Micron (NYSE: MU). That light at the end of the tunnel was just another screaming Shinkansen bullet train heading your way.
Just when it looks like things can't get any worse in the computer memory market, the bottom drops out. Again. Micron just reported a huge $0.91 GAAP loss per share, worse than the year-ago $0.34 loss per share. Sales dropped 9% year-over-year to $1.4 billion, despite a 35% increase in DRAM unit sales (measured in gigabits) from last quarter and 40% higher Flash memory sales. Demand looks solid, but so does the oversupply.
As you can imagine, selling prices continued to plummet. The average gigabit of memory sold at a 34% discount to the DRAM selling price at the start of the quarter. Some consolidation in this troubled sector would solve a lot of problems right now, and voluntary production cuts could accomplish the same thing. Micron and rivals like Samsung, Spansion (Nasdaq: SPSN), and Intel (Nasdaq: INTC) have been flooding the market with ever-cheaper memory chips for a long time, and it's in everybody's best interest to let up on the throttle for a while.
Don't expect that to happen anytime soon, though. Micron CEO Steve Appleton is still talking about process improvements and capacity increases. The company even took on new debt -- increasing its long-term debt load to $2.5 billion -- to land a deal with Qimonda (NYSE: QI) that secures more sheets of silicon materials each month.
The best thing Micron is doing right now is to hold back a bit on capital improvements and delay a new production line it would share with Intel in Singapore. Good thinking there, Steve. But you need to go a lot further than that.
"I don't think anybody thinks that the next few months are going to be just awesome for the industry," Steve said in the analyst call. Darn tootin' we don't, amigo. You have a few knobs and levers in your hands that can change the picture a little bit, though. Feel free to use 'em.
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