Micron Predicts 2Q Earnings Decline

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Computer direct marketer Micron Electronics Corp., Nampa, ID, said its sales and earnings for the second quarter were hampered by the timing of the release of Intel's Pentium III chips and increased price competition in the direct sales channel.


In a conference call with analysts, Joel Kocher, Micron's chairman/CEO, said that Compaq's direct sales efforts forced Dell Computer to lower its prices, which put pricing pressure on Micron. Dell recently said it has been pricing more aggressively since late last year.


"Although we don't see ourselves losing business in any way because of Compaq's entry into direct sales, still, Dell sets the price umbrella in the direct channel," said Kocher.


Micron said its revenues for the second quarter, which ended March 4, would be 6 percent to 9 percent below the $403.5 million it recorded in the first quarter, and margins on PCs would fall to about 14 percent, from 15 percent in the first quarter.


The advance notice of the Feb. 26 shipment of computers made with Pentium III microprocessors hurt Micron in the period because consumers delayed their computer purchases in anticipation of the new machines, the company said.


Micron only had one week during the fiscal quarter to capitalize on the built-up demand for systems with the new chips, Kocher said. The company offered incentives, including free next-day delivery, to build sales during that window, but Kocher said the company did not expect the last-minute efforts to make up for the prelaunch declines.


He added, however, that the company expected to benefit from Intel's transition to the new chips later in the year.


"We love Intel transitions," he said. "Intel transitions are good for us and are good for, especially, the direct-model players. The direct model is advantaged during transitions and typically picks up market share within 60 to 90 days."


Other factors affecting revenues and profitability in the second quarter included a decrease in sales to government customers and increased expenses for advertising and for investments in field-sales representatives. Kocher said sales to government accounts during the second quarter were down about 45 percent, or $50 million, compared with government sales in the first period.


The company, which is majority owned by Micron Technologies Inc., currently derives about 20 percent of its revenues from home consumers, about 30 percent to 35 percent from government accounts and about 10 percent from education customers, with the rest coming from business segments. The company hopes to increase its profitability in the long term by focusing on selling higher margin products like notebooks and servers to small- and medium-sized business customers.


The increased advertising expenses during the quarter primarily related to the direct response TV campaign the company aired during the Super Bowl pre-game show on Fox, according to Denise Smith, a Micron spokeswoman. The company aired nine spots during the show in exchange for donating computer equipment.


The company also said it would take a previously announced one-time charge of about $4 million in the second quarter related to the consolidation of its Japanese operations into its North American headquarters.


Micron said it would report its earnings on March 22.
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