In our Semiconductor Sector Overview, we saw how the tough memory market, driven by oversupply and weak demand, was leading to a decline in the chip sales. In this post, we will review the performance of Micron and National Semiconductor.
On April 2, Micron Technology Inc. (NASDAQ:MU), the largest producer of computer memory chips in the US with annual revenue of $5.8 billion, reported a dismal second quarter and a ninth consecutive quarterly loss. Earlier coverage is available here and here.
Q2 net revenue declined 27% to $1 billion driven by market weakness and a 20% decline in memory ASP. Net loss was $751 million, or $0.97 a share, compared with a loss of $777 million, or $1.01 last year. Analysts expected a loss of $0.64 a share on revenue of $1.14 billion.
Revenue from sales of DRAM products was down 30% sequentially due to a 30% decrease in selling prices, but DRAM sales volumes remained stable. Revenue from sales of NAND Flash products decreased 20% sequentially due to a 13% decrease in selling prices as well as an 8% decrease in sales volume. Sales of CMOS image sensors decreased 54% sequentially as a result of weakness in consumer markets. The mobile segment in particular saw a sharp decline in overall demand with net shipments down 57%.
Micron’s gross margins have been badly hurt as the production costs of chips have exceeded their selling price: the company reported its third consecutive quarter of negative margins. Gross margin in the quarter was -26.9%, down from -3.2% last year but an improvement over the recent quarter’s -32%. The company ended the quarter with cash and investments of $932 million. Total debt increased by $29 million to $2.895 billion. The debt is a huge concern in the current tight-credit environment.
In November Micron acquired Qimonda’s 35.6% stake in Inotera Memories, a joint venture between Micron and Nanya. However, Qimonda (QI) defaulted on its wafer purchase commitment to Inotera, which triggered the idle capacity charges as per its supply agreement.
Due to weak demand, Micron is phasing out its 200-millimeter capacity in Boise, Idaho. It has also announced plans to eliminate about 2,000 jobs. Its headcount in the quarter was 20,794, down 5% sequentially. The company has reduced its budget for new plants and equipment for the fiscal year to $700 million from an earlier target of $750 million. About 75% of the budget has already been spent.
The Taiwanese government is taking measures to resurrect the struggling chip industry, but Micron doesn’t see itself joining it. The stock is currently trading around $4 with a market cap of about $3 billion. It hit a 52-week low of $1.59 on November 20.
On March 11, National Semiconductor (NYSE:NSM), a chipmaker with annual revenue of about $1.88 billion, reported third quarter results that beat profit estimates. However, the company announced plans to reduce its workforce. Let’s take a closer look.
Q3 revenue was down 36% y-o-y and 31% q-o-q to $292 million, slightly short of the analyst estimate of $295.6 million. Net income was $21.1 million, or $0.09 per share down from $36 million or $0.16 per share in the second quarter. Analyst estimate was $0.05 per share. Q1 analysis is available here.
Gross margin was 57.5% down from 65.9% in Q2 due to lower revenue and lower factory utilization. Total bookings decreased by 25% q-o-q driven by lower order rates from the distribution channel. National ended the quarter with cash reserves of $777 million, down slightly from $786 million in Q2. It also declared a cash dividend of $0.08 per outstanding share of common stock.
National announced plans to cut its 6,500-strong workforce by 26% to save about $30 million per quarter. It said it would be immediately reducing headcount by 850 employees. Another 875 employees will be eliminated over the next several quarters as National closes its Texas and Suzhou, China manufacturing facilities. The workforce reduction will result in $160 to $180 million in one-time charges.
Sales declined 40% sequentially in National’s largest end market of mobile phone handsets. However, new orders from its top seven mobile phone customers grew about 20% sequentially. National said that this indicates their actions to reduce component inventories and clean up their supply chains appear to be largely behind them.
For Q3, National expects sales to decrease sequentially by 5 to 10% as the weak economy continues to hurt its distribution channels. On March 20, it bought Act Solar, which works to enable grid-parity for photovoltaic arrays, to monitor solar arrays in its SolarMagic chipset. The stock is currently trading around $12 with a market cap of about $2.8 billion.