The worst part about working in the computer memory sector is that you can't forget the past.
Memory maker Micron Technology(NYSE: MU) can flash back two years to a time when its stock was trading six times higher than it is today. It can go back a decade or two earlier, when growth was as easy as hopping on the coattails of the personal computer industry. Thanks for the memories, Micron.
It's a different game today. The company is posting a wider-than-expected fiscal first-quarter loss to kick off 2003 in uncertain fashion. Recording a massive $316 million loss on sales of $685 million isn't pretty, as Micron is forced into negative gross margins just to keep pace with subsidized competition and falling memory prices.
Yes, memory prices are pretty low right now. Head to your local Best Buy(NYSE: BBY) or Circuit City(NYSE: CC), and you can add 256 megs of memory to your desktop for about $30. Micron's average selling prices fell by 12% sequentially this past quarter. That's bad for them, but good for you. That is, if you wanted to upgrade your computer in the first place.
See, that's the problem. While sales growth has stalled for new computers, so has the perceived need to have fatter memory to surf the Web or run applications. Analysts following Micron didn't think things would end up so poorly. They expected the struggling semiconductor giant to lose only half as much on more than $800 million.
While value vultures might be circling the company right now, things could get even worse. Sure, the company closed out the quarter with $873 million in cash and short-term securities, but with 605 million diluted shares, that's just a cash cushion of $1.44 a share. While this gives the company the flexibility to make it through these lean cyclical lulls, it's anyone's guess when it will turn things around.
So go ahead and stroll down Memory Lane. Just don't be surprised if Micron takes a detour.
