Micron Technology Inc. last week reduced its fiscal 2003 capital equipment budget by as much as 20%, another indication that the expected resurgence in corporate PC demand has failed to materialize.
Micron, the world's second-largest DRAM producer, said it is also focusing on internally improving its operations to return to profitability, a partial reversal of its efforts earlier this year to help mop up the industry's excess manufacturing capacity by acquiring rival facilities.
"We have been positioning the company to take our current assets and make them more productive," Steve Appleton, Micron's chairman, president, and chief executive, told analysts on Tuesday. "We don't need to go out and buy other assets."
Micron and its rivals have seen their sales drop and operating losses pile up in recent quarters due to a combination of low average selling prices for DRAMs and lower-than-expected demand for memory-intensive products such as PCs. Even the traditionally strong back-to-school sales season has been sluggish, according to analysts.
"Our channel checks proved accurate, as Micron indicated that they experienced a 'mild' back-to-school season," said Eric Ross, an analyst at Investec Inc., New York, in a report. "Going forward, indications from customers are for a slightly muted Christmas selling season."
Micron, Boise, Idaho, said it now expects capital expenditures for the fiscal year ending August 2003 to be between $800 million and $1.2 billion, down sharply from an earlier estimate of $1 billion to $1.5 billion.
However, the company believes the lower capex estimate will not hurt its operations. Appleton said capital spending up to now has allowed Micron to ramp up its 0.13-micron processes aggressively. He estimated that 25% of the company's wafer starts are now running the 0.13-micron process, rising to 50% by the end of this year and to between 70% and 75% at the end of 2003.
Hurt by falling ASPs
Also announcing its fiscal fourth-quarter results last week, Micron admitted being hurt by declining average selling prices, which plunged as much as 30% during the three- month period ended Aug. 29. However, sales exceeded analysts' expectations during the quarter, rising 59%, to $748 million from $470.5 million in the year-ago period, but down 3% from the $771 million reported in the preceding quarter.
The lower prices were substantially offset by a roughly 40% increase in megabit shipments, Micron said. Even so, the company still recorded a hefty loss of $586.5 million, or 97 cents per share, slightly below the loss of $575.5 million, or 96 cents per share, reported in its 2001 fiscal fourth quarter. As in the year-ago period, Micron's cost of goods sold exceeded its sales, giving the company a negative gross margin of $209.2 million.
Operating results for the latest quarter included a write-down of $174 million to record inventories of semiconductor products at their estimated market values, according to the company.
In the fourth quarter, Micron completed its transition from the 256Mbit synchronous DRAM to the 256Mbit DDR DRAM as its primary product. Finished-goods inventory levels of DDR products are minimal as demand for DDR memory remains strong, Micron said.
The company's recent efficiency actions reduced its fourth-quarter per-megabit manufacturing costs by approximately 10% from the preceding quarter, according to Micron. Near-term cost reductions are expected to result from using 0.13- and 0.11-micron manufacturing capacity.
Megabit production in the fourth quarter was about 20% higher sequentially. In addition to next-generation memory development efforts, R&D expenses include costs incurred in the design and development of devices for data networking applications and CMOS imagers.
Because of historically low average selling prices, estimated market values of some of the company's products, especially synchronous DRAM, held in finished-goods and work-in-process inventories are currently below their costs, requiring an inventory write-down to estimated market values.
Mike Sadler, vice president of worldwide sales, said Micron expects to increase its megabit DRAM production more than 40% in its new fiscal year. Bit production in the fiscal first quarter will increase "in the low double digits," Sadler said.