After the bell yesterday, Micron (NYSE:MU) reported a fourth-quarter loss of $123 million, or $0.20 per share, an improvement from a $586.5 million loss last year. Sales increased 21% to $889 million.
Micron, which makes memory chips for computers and other electronic devices, benefited from a combination of increased demand and improved yields. Back-to-school PC sales helped drive up average prices 15%. In addition, megabit production increased 8% from the third quarter due to the completed migration to .13 micron process technology and a further transition to .11 micron devices.
The company also benefited from a 30% year-over-year decrease in the average price of its 256 Meg DDR SDRAM.
But in the bigger news of the day, the company announced a $450 million investment by Intel (NASDAQ:INTC) in exchange for 5.3% of Micron's outstanding common stock.
Now, with the release of its "Grantsdale" chipset next fall, Intel is assured a steady supply of Micron's next generation DDR2 memory chips. Conversely, Micron is guaranteed a customer for its product. Micron will ramp up its 300 mm fab facility with the cash received in the deal.
Tai Nguyen, semiconductor analyst for Susquehanna Financial Group, believes "Micron will enjoy a lot more influence in distribution channels and may be able to expand share at the expense of rivals Samsung and Infineon (NYSE:IFX)."
Intel made a similar $500 million investment in Micron in 1998. Micron's part was to ensure that Rambus' (NASDAQ:RMBS) RDRAM became the PC standard and that Intel had a steady supply. Except they never made any. According to Fool Senior Analyst Tom Jacobs, "Micron took the money and balked."
Still, Intel gets what it pays for. Double-crossed or not, Intel gets Micron equity at fair market value. This is also a good deal for Micron, as it gets a cash infusion and perhaps some increased influence.
For their part, investors should be wary. Micron isn't quite in a healthy state: At the end of its fourth quarter and fiscal year, Micron had $1 billion in cash, but also $1 billion in debt and over $1 billion in annual losses.
Shares of Micron are down 5% to $13.40 at midday.
