Micron confident of improved competitive position

SAN FRANCISCO Thu Feb 7, 2008 4:24pm EST

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SAN FRANCISCO Feb 7 (Reuters) - Micron Technology Inc MU.N, the world's fifth-biggest maker of memory chips, is confident of its improved competitive position in the volatile industry despite overcapacity that still plagues the global market, company executives said on Thursday.

Last year the biggest memory chip makers such as Samsung Electronics (005930.KS), Hynix (000660.KS), Elpida 6665.T and Qimonda QI.N all spent handsomely to boost chipmaking capacity in a bid to gain market share, according to market research firm iSuppli. Yet so far this year, cuts in capital spending have yet to bring supply more in line with demand.

"They were much more upbeat than I would expect, given the state of the industry," said American Technology Research analyst Doug Freedman, following Micron's annual analyst day. "They are really very comfortable with their position in the market relative to their competitors."

Micron in December posted a quarterly loss as the industrywide glut sent prices below production costs, but Chief Executive Steve Appleton said then that the Boise, Idaho-based company would continue to drive down operating costs to help boost margins.

"We think we're very competitive now on a cost basis with the industry leaders" on flash memory, Appleton said on Thursday at the meeting, which was webcast. "Relative to the competition we are really starting to turn the corner" on cutting overhead and research and development spending.

Micron makes dynamic random access memory (DRAM) chips as well as flash memory chips that are used in mobile handsets and digital music players. Flash memory retains data when power to the chip is turned off.

The company is also in the process of spinning off its image sensor business into a separate company because it concluded it did not fit well with the rest of the company, which is focused solely on memory chips.

Micron in recent years entered the market for image sensors -- used in digital cameras and picture phones -- to broaden its revenue stream.

"We still like that business a lot," Appleton said. "With what's happening in our memory business, we can't really do justice to that part of our business in its current form."

Ultimately, whether Micron takes the imagine sensing business public or forms a partnership with another chipmaker, it will function as a foundry for the image sensor chip business.

"Right now they don't feel like it garners any sort of valuation," Freedman said of the image sensor business. "It will still have the benefit of diversifying their revenue base (as a stand-alone entity) but they can monetize it at the same time."

Appleton also said that the company continues to conduct a search to find a new chief financial officer to replace Bill Stover, who has left the company. Appleton is interim CFO, and said he hopes to find a replacement soon, but offered no specific timetable.

"It's safe to say they're moving on it and hope to bring in a high-caliber CFO," Freedman said.

Appleton did not issue any specific financial forecasts at the analyst meeting, yet he did say that he expects Micron's 2008 capital spending to be $2.5 billion to $3.0 billion, unchanged from its earlier estimate.

"We'll continue to look at the market," Appleton said, noting that the company would remain flexible in making changes as supply and demand in the memory-chip market dictate.

Shares of Micron closed up 13 cents, or nearly 2 percent, to $7.12. In the past year, the stock has declined some 46 percent amid oversupply in the memory chip market. (Editing by Phil Berlowitz)

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