Chipmaker Micron focuses on Japan wafer suppliers

SAN FRANCISCO Wed Mar 23, 2011 6:44pm EDT

SAN FRANCISCO (Reuters) - Micron Technology (MU.O) is trying to secure its supply of crucial silicon wafers following Japan's devastating earthquake and said it was too soon to gauge the disaster's impact on its business.

Immediately following the quake earlier this month, shares of Micron surged on news that competitor Toshiba temporarily stopped production of NAND flash memory chips -- used in smartphones and other wireless devices -- at its facilities in Yokkaichi.

But executives at the top U.S. maker of memory chips for computers and mobile devices told analysts on a conference call on Wednesday it was too early to say whether the natural disaster would amount to a net benefit or hindrance.

"A number of our suppliers are in Japan, and they do range from chemicals to materials to wafers," Chief Executive Steve Appleton told analysts on a quarterly conference call. "Some of them were not impacted and obviously some of them were."

Micron posted quarterly results well above expectations on Wednesday after aggressive sales growth more than offset falling memory chip prices, sending its shares sharply higher.

Japan -- mostly Toshiba -- accounts for more than a third of the world supply of NAND chips. Compared to many other kinds of semiconductors it is easy for customers like Apple (AAPL.O) to switch between suppliers in case of shortages.

More than a week after the quake, manufacturers in Japan, which supplies a fifth of the world's semiconductors, are struggling to get back up to speed as factories grapple with power cuts, crippled infrastructure and a shortage of parts.

Shin-Etsu Chemical (4063.T), the world's leading maker of silicon wafers used to make microchips, shut down two of its plants, and competitor MEMC Electronic Materials Inc WFR.N suspended operations at its Utsunomiya plant.

The two companies' closed facilities account for a quarter of the world's silicon wafer output and could particularly hit the production of DRAM memory chips -- Micron's main product.

Micron reported no problems at its DRAM chip plant in Nishiwaki, its only facility in Japan. It has other manufacturing plants in the United States, Israel, Italy and Singapore.

The company's exposure to Japanese wafer and chemical suppliers is less than many of its competitors, executives said.

Shares of Micron, which competes with industry leader Samsung (005930.KS), Elpida 6665.T and Hynix Semiconductor (000660.KS), surged 2.5 percent to $11.00 after closing 2.5 percent higher at $10.61 in the regular Nasdaq session.

Micron, partnered with Intel, is ramping up production at a new NAND plant in Singapore, and it could find itself at an advantage if competitors building their own new factories run into problems getting high-tech equipment from Japanese suppliers.

"This could be a situation where we previously thought (Micron) would be four to six months in front of their competitors, and four months could turn into six, eight or 10 months if in fact critical equipment can't be shipped out of Japanese suppliers," said Gleacher & Company analyst Doug Freedman.


Prices for DRAM, used in personal computers and increasingly in mobile devices, have plunged in recent quarters, although Appleton said he sees DRAM pricing improving.

A lack of new manufacturing capacity following the recent downturn has helped improve DRAM prices. And Intel's (INTC.O) new Sandy Bridge processors is expected to lead manufacturers to build PCs this year with greater amounts of DRAM memory.

Prices for Micron and its competitors' NAND memory, used to store data like music and photos on mobile devices, have also fallen but are expected this year to be supported as growing demand from smartphones, Apple's iPad 2 and other mobile gadgets help soak up increasing production. Spot prices for NAND spiked following the earthquake.

In the fiscal second quarter ending March 3, Micron's revenue from sales of basic DRAM memory chips fell 6 percent sequentially, despite a 23 percent drop in selling prices.

Sales of NAND memory rose 8 percent as a 4 percent drop in prices from the previous quarter was more than made up for by higher volume.

Micron said revenue in its second quarter was $2.3 billion, up from $2.0 billion in the year-ago period. That was better than the $2.07 billion expected on average by analysts, according to Thomson Reuters I/B/E/S.

Net profit fell nearly 58 percent to $72 million, or 7 cents per share, in its fiscal second quarter ended March 3, compared with $155 million, or 15 cents per share, a year earlier. That beat expectations of 2 cents a share.

The company credited decreases in manufacturing costs also for limiting the impact of price declines to its bottom line.

(Reporting by Noel Randewich; Editing by Gary Hill, Bernard Orr)