|
Micron PC unit sees Q2 hit
|
 |
March 1, 1999: 7:29 p.m. ET
Direct-PC vendor cites Intel's new chip, Dell price cuts for lower Q2 net
|
NEW YORK (CNNfn) - Direct personal computer vendor Micron Electronics Inc. said Monday its second-quarter profit and sales will fall short of analysts' targets due to lower-than-expected demand.
The Nampa, Idaho-based company said earnings in the quarter ending March 22 will come in below the 12 cents a share reported in its fiscal first quarter. The company said sales for the second fiscal quarter are expected to fall six to nine percent from the $403.5 million reported in the first fiscal quarter of 1999.
Analysts polled by First Call Corp., which tracks earnings projections, had expected the company to report second quarter net profit of 14 cents per share.
Micron Electronics faulted in part an unexpectedly early marketing push by Intel Corp. for its new Pentium-III microprocessor, which became available for customers Friday.
Announcing its Pentium III was on the way months before the actual release, Intel in effect caused PC buyers to delay planned purchases until the new chip hit the market, Micron said.
But that was not all: Micron said delayed federal budgetary process effectively put off governmental purchases of its products to later this year.
Micron also said it suffered the fallout of a price war between leading direct-PC vendor Dell Computer (DELL) and PC industry titan Compaq Computer (CPQ) which launched a foray into the direct-to-consumers marketing model last year.
"Unfortunately for us, the timing [of the Pentium III release] could not have been worse," said Joel Kocher, Micron Electronics chairman and chief executive officer, during a conference call with analysts and reporters Monday.
"Intel typically doesn't talk of new products until the day of shipment," Kocher said. "The timing and early promotion, which deviated from earlier practice, hurt our business."
Kocher said, however that usually such "product transitions" by Intel are usually good for business.
"We love Intel transitions - they are good for us," he said, adding the direct-model business tends to accelerate in the 60- to 90-day period following such a product release.
The warning from Micron Electronics (MUEI) marks the latest casualty in a suddenly-wobbly run for PC makers that has hit bellwether players such as Dell and Compaq.
Micron was quick to insist that Compaq's entry into the direct-vending segment has not hit its own bottom line, but that Dell's response did.
"We are not losing market share to Compaq - but Dell sets the pricing umbrella, and Dell cut its prices, so we had to respond to it and did," Kocher said.
"Dell pegged its pricing on the Dimension line to Compaq, and because we peg to Dell ... we got lower gross margins than we anticipated," he added.
The advent of sub-$1,000 PCs has put increasing cost pressures on the companies, and contributed to narrowing of profit margins.
In Nasdaq trading Monday, shares of Micron Electronics (MUEI) climbed 1/16 to 14-7/16, before the stock was halted ahead of the earnings warning.
Micron Electronics is a subsidiary of memory chip maker Micron Technology (MU), which owns a 64-percent slice of the PC maker.
The net income from Micron Electronics appears as a line item in Micron Technology's statements, so its earnings also could take a hit as a result of the PC maker's announcement.
Micron Electronics said operating expenses would rise in the second quarter by $2-3 million to pay for a broader advertising campaign and an increased sales force to offset the Pentium III's impact.
Kocher said he expects Micron to return to above-market growth rates in its fiscal fourth quarter.
On the upside, Micron said call volume concerning the new Pentium III had increased by 30 percent in a period of 3 to 4 days, while Internet-site visits had risen about 25 percent on Friday from a week ago Friday. 
|
|
|
|
|
 |
|
