PC vendor Micron Electronics Inc’s fourth-quarter earnings report, which showed a major upside surprise at $0.14 – when the consensus estimate was just $0.07 – is not a good indication of the overall health of the company, according to analysts at Warburg Dillon Read LLC. A research report by the investment bank points out that the strong showing was entirely the result of higher profits in the company’s Spectek memory business, fueled in part by rising DRAM prices.
WDR analyst Charlie Wolf said estimated operating income for the Spectek business was $26m – accounting for all of Micron’s operating income. The company’s PC business, meanwhile, continued to struggle, as unit shipments dipped 6% year-over-year and revenue fell 15%. The major drag, according to Wolf, was the consumer market, which Micron is progressively exiting. Consumer revenues plunged 61% from the year-ago quarter
On the bright side, consumer revenues now account for only 21% of the total, so the impact of flagging consumer sales should lessen going forward. The real hope for the company remains its strategy of targeting the mid-sized business and government markets, Wolf said. The company no longer has the scale to compete in the home market nor the product portfolio to compete in the large business market, he added. The mid-market segment saw a 15% sequential decline in revenues in the August quarter, while government sales were up 45% sequentially.
Looking ahead, WDR sees the potential for a modest improvement in Micron’s performance in 2000, as the consumer business fades, the mid-market strategy begins to bear fruit, and web and application hosting services from recently-acquired HostPro Inc start contributing revenue. The PC business, meanwhile, is expected to be at least marginally profitable and the lion’s share of earnings will stem from Spectek.
