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September 28, 1998

PC VENDOR MICRON ELECTRONICS “TURNS THE CORNER”

By CBR Staff Writer

Micron Electronics Inc, the direct PC vendor from Nampa, Idaho, surprised investors with better than expected profits on Monday and CEO Joel Kocher said, It appears we may have turned the corner. Fourth quarter net profits were up 8% to $16.2m and the $0.08 per share profit (excluding one off gains) exceeded the $0.02 consensus of estimates by a substantial margin. But revenues fell 34% to $340m against last year, primarily due to a 20% decline in notebook sales as the company fumbled its transition to Pentium II-based notebooks. The headline per share profit of $0.17 included $0.09 of one-off gains as the company reversed some now unnecessary provisions for reorganization costs. Kocher said Micron’s reorganization plans were now progressing …ahead of schedule. He explained that the new management team brought in February was now on top of the three problems outlined as requiring urgent attention, namely uncompetitive costs, poor direct sales execution and a weak marketing engine. Sequentially, desktop PC unit shipments rose by 14% in the fourth quarter while server unit shipments were up by 28% but total PC sales remained flat sequentially due to the 20% decline in notebooks sold. But most importantly, according to Kocher, the company has brought its direct sales model back into line and end of year inventories fell to $28m, down 70% on last year. Sales generated from Micron’s internet site have risen to what the company described as a ‘double digit’ proportion of total revenues. Visits to Micron’s Web site were reputedly up by 41% from May through to August and calls received by the direct sales team were said to be up 101% in August against July. Speaking about the PC market in general, Kocher said that none of Micron’s recent problems could be attributed to the marketplace, It was all self inflicted, he said. However he warned that component supplies in the PC market had tightened precipitously in the second half of the year, causing Micron some problems in securing outside suppliers.

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