Micron Technology Sinks Deeper
As the world moves towards the mobile computing platform and sales of the traditional PC hit a roadblock, a few companies directly or indirectly related to the older computing platform are undoubtedly gonna see their top lines and margins take a haircut. This holds true for Micron Technology (NAS: MU) as its first-quarter earnings fell below Street's expectations.
Now let's take a look to see whether or not there is some reprieve in store for Micron.
A look at the quarter
Revenues for the quarter fell some 7% to $2.09 billion from the year-ago period as weak sales of Dynamic Random Access Memory, or DRAM, used in personal computers hurt Micron. The oversupply of DRAM chips coupled with soft sales due to the economic uncertainty currently prevailing have pulled down prices and throttled the company's gross margin, which shrunk to 14.6% from 23.3% one year back. All these factors pushed the company into the red at $187 million from a profit of $155 million in the year-ago period. However, some analysts expect DRAM prices to rebound in the New Year and this should come as a reprieve to Micron, whose DRAM business took a painful blow, reporting an operating loss of almost $169 million.
The company is doing well concentrating on the mobile-computing business through its NAND segment, which saw a 6% jump in revenue on a sequential basis after offsetting the effect of declining prices of NAND products. This provides the cue for Micron to restructure its business according to the growing demand for tablets and smartphones, as this may arrest the decline in revenues going forward.
So what's next?
I have previously written how NVIDIA (NAS: NVDA) caught the pulse of the consumer and started focusing more on manufacturing chips for smartphones and tablets. It seems Micron too has started to tread this path, albeit a bit late.
Moreover, Micron's primary business of manufacturing DRAM chips is expected to result in further losses as industry bigwigs Intel (NAS: INTC) and Texas Instruments (NYS: TXN) expect the weakness in the chip market to continue and have already jumped off the bandwagon. With this in mind, Micron should try to win more orders for smartphone and tablet chips rather than concentrating on PC chips, if it hopes to help its revenues climb and see its margins improve.
The Foolish bottom line
Micron is the only U.S. company that is still engaged in the production of DRAM chips and I think it would be wise if the company fast-tracks its shift to the NAND business. With the way things are going at the moment, it makes sense to wait and watch how Micron might steer itself back to profits.
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At the time this article was published Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. The Motley Fool owns shares of Intel and Texas Instruments. The Fool owns shares of and has bought calls on Intel.Motley Fool newsletter serviceshave recommended buying shares of Intel and NVIDIA.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Intel.Motley Fool newsletter serviceshave recommended writing puts in NVIDIA. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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