It was the best of times; it was the worst of times. It was the Tale of Two
Micron corporations that unfolded at last month's International Trade Commission
hearing in the countervailing duty case against Korean DRAM makers.
Depending on which side of the fence you were on, Micron Technology Inc. was
portrayed as either financially strong or hurting badly. About what you would
expect in adversarial presentations at the ITC on whether the U.S. DRAM industry
was injured by allegedly illegal Korean government subsidies to Hynix
Semiconductor Inc. and Samsung Electronics Co.
The ITC is concerned principally with injury to the domestic DRAM companies. The
other elements of the case, government subsidies including $11.9 billion in
allegedly illegal support to Hynix, will be decided by the U.S. Commerce
At the ITC hearing Hynix attorneys tried to use Micron's own financial
statements to the press and investors against the firm. Quoting Micron Chairman
and President Steve Appleton in a 2002 Year in Review report: "As the strongest
player in our arena, Micron is well-positioned to compete in this difficult
environment." Again in a July interview with our sister publication EETimes, "We
have a good cash balance. I think we're in as good a shape as anybody."
But Appleton's testimony to the ITC hearing took a different view. "Micron is
at a dangerous point in our corporate life -- We lost nearly $1 billion in fiscal
2001 and nearly $1 billion in fiscal 2002," he said.
From Micron's complaint to
the ITC and U.S. Commerce Department: "In the case of Micron, its gross margin
in FY 2001 reached a 10-year low of just 2.8%. Micron's financial results for
fiscal year 2002 were even worse. Micron's gross margin in fiscal 2002 was
negative 4.3%. One of the world's most efficient DRAM producers is, effectively,
barely able to cover its cost-of-goods-sold and forced to rely on increasing
debt and drawdowns of dwindling cash reserves to sustain research and
Hynix lawyers countered with Appleton's 2002 Year in Review statement: "We ended
fiscal 2002 with approximately $1.2 billion in cash and marketable securities.
Micron has maintained one of the strongest balance sheets in the industry."
Obviously, Micron is caught in the middle of two cross-currents. On the one hand,
the No. 2 global DRAM producer must put its best foot forward to court investors
and support the price of its stock. On the other side, it must convince the ITC
that the firm has been severely impacted by the Korean actions.
The stakes are high: even if Commerce determines that the Korean government did
provide illegal subsidies to the country's DRAM makers, Micron would lose its
case if the ITC found the firm had not suffered any injury.
Regarding the disparate statements, a Micron spokesman said the firm was able to
raise money to bolster its financial position several years ago when the DRAM
market was favorable. However, he claimed the Korean subsidies allowed Hynix and
Samsung to cut DRAM prices sharply depressing the global market.
He said Micron
is coping financially with market conditions, "but the company lost nearly $2
billion in the last two fiscal years, which wouldn't have been the case in a
more normalized market."
Interesting as the juxtaposition of Micron financial comments may appear, the
ITC decision won't be made on the basis of a few conflicting statements. The six
month ITC review will delve into excruciating minutia of financial records, much
of it confidential data.
And the ITC will be the final judge of Hynix' assertion to the Commission that
gross profit (or loss) isn't the best indicator of injury to a domestic company.
The U.S. DRAM industry in '01 and 1H '02, the period of inquiry, also covers
more than just Micron. Four chipmakers -- Fujitsu, IBM, NEC and Toshiba -- left
the U.S DRAM production scene during this period. Infineon Technologies AG
operates a DRAM fab in Richmond, Va. and has an additional fab shell at the site
ready to equip. The subject firms in the countervailing duty case, Hynix and
Samsung, also have U.S. fabs, but chips made in these facilities and packaged in
Korea won't be part of the case.
From here on the legal sparring at the ITC will be behind closed doors. And that
may be a far, far better thing to do.