Micron Fights Through the Fire and Flames
That's often what happens when a company chases revenues by offering deep discounts. Fire sales hurt margins, which can lead to bottom-line losses even if the revenue looked great.
Sure enough, that's exactly what Micron did this quarter. Management wraps this uncomfortable truth in phrases like "decreases in average selling prices," but we're looking at a memory-chip market in full price-war mode here. In particular, the market for NOR flash memory chips for the wireless market saw dramatic price drops.
Micron has been to this dance before, but the culprit has usually been the DRAM market. Brutal price wars in that segment in the 2000s drove several suppliers out of business and created a very consolidated marketplace. Now the same thing is happening to the flash market.
Wall Street's reaction to Micron's report seems to underscore that conclusion. Micron shares fell about 4% overnight, followed by flash specialists SanDisk (NAS: SNDK) and OCZ Technology (NYS: OCZ) , both at about 3.3%. Smaller rival Spansion (NAS: CODE) fell just 1.2%, but then the market didn't expect much out of that company to begin with; Spansion's shares have lagged its rivals' over the last year with a 36% negative return.
Tight pricing in an important market segment is obviously not great news, but as I said, Micron knows this rodeo very well. The company has a strong balance sheet and will probably pick up the remains of a few failed competitors on the cheap when all is said and done.
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At the time this article was published Fool contributor Anders Bylund owns shares of Micron but holds no other position in any of the companies mentioned. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.
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