February 6, 2001 10:50 AM PST
Micron seeing further decline in memory prices
The contract price for 64-megabit memory chips is running at about $3, while 128-megabit chips are selling for around $5 when purchased as part of a long-term contract, according to Kipp Bedard, vice president of corporate affairs for Micron. On the spot market, where excess supply is traded, prices are somewhat below that, Bedard told investors at the Bank of America Securities Technology Week conference in San Francisco.
Those prices represent a further drop from a slide that began late last year. In December, 64-megabit chips were fetching contract prices of about $3.80, down from $7.50 in the first week of October, according to Thomas Weisel Partners analyst Eric Ross.
While a couple of PC customers have started to resume orders for memory at the rate they are selling PCs, most are still sitting on a glut of components.
"They're working through inventory for what promised to be a better fourth quarter," Bedard said.
Apple Computer Senior Vice President Tim Cook said at last week's analyst meeting that he expects memory makers to sell chips for less than their manufacturing costs.
"We see memory continuing to be in surplus," Cook said. "The price continues to be under pressure."
Memory makers have heard this story before. In late 1995, analysts predicted that a memory shortage was on the horizon. Semiconductor companies reacted by investing heavily in factories. A glut ensued. By 1998, many companies regularly sold memory for less than it cost to make. Fabrication plants were shut. Then the Taiwanese earthquake of 1999 caused a shortage and rising prices. Stronger-than-anticipated PC demand in early 2000 sent prices up further and fueled hope of profits. Those hopes were dashed last summer.
Bedard said the memory makers are sitting on six to 10 weeks worth of inventory. That level is about what the industry had in last year's first quarter, or perhaps a couple of weeks more.
Merrill Lynch on Tuesday cut its sales and earnings estimates on Micron, saying the company appears to be getting more aggressive in its efforts to get rid of inventory. Analyst Joe Osha cut his earnings estimate for the fiscal year ending in August to $1.42 per share, down from $2.86. Osha now expects revenue of $6.2 billion, down from an estimate of $8.2 billion.
"Micron appears to be offering 128-megabit memories for $4.50 to $4.80, which would represent an abrupt decline from the mid-$5.00 levels we've been seeing," Osha said. "The company has nearly a quarter's worth of inventory that it needs to take off its balance sheet."
However, Osha reiterated an intermediate-term "buy" rating, noting Micron's leading position in the market. Micron is the largest of the five main memory chipmakers, accounting for one-fifth of all the memory bits shipped last year, according to DeDios and Associates.
"We think that a weak spring is already factored into Micron's stock price," Osha wrote in a research note.