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March 1, 1999

PRICING PRESSURE, PENTIUM III WILL HIT MICRON Q2

By CBR Staff Writer

PC vendor Micron Electronics Inc has warned that its sales and net income levels for the second fiscal quarter of 1999 ending Thursday will come in below first-quarter levels due to a slowdown in unit sales. The Nampa, Idaho-based direct marketer is blaming a host of factors, including purchase deferrals resulting from the early promotion and late-quarter timing of Intel’s Pentium III processor launch, the anticipated seasonal slowdown in Micron’s government segment sales and continued pricing pressure in its consumer business. The bad news from Micron came on the heels of a similar warning by Compaq Computer Corp that its current first quarter was looking light also, mostly due to weakness in the small- and medium-sized business market and channel inventory management problems that have affected North America and Europe. Gateway Inc is also said to be experiencing difficulties due to what it is describing as a seasonal slowdown in the month of February after a strong holiday period through January. Micron meanwhile, is predicting net sales for the quarter to be down 6% to 9% from net sales of $403.5m in the first quarter, while overall gross margins should remain at 17.1%. However, the PC gross margin for the period is expected to be down about one percentage point from the first quarter’s 15%. This is due to the aforementioned pricing pressure and the fact that the lower-margin consumer sales made up a higher percentage of the overall mix due to the holiday shopping season. Gross margins for semiconductor memory products is expected to be similar to that of the first quarter. Operating expenses for the quarter are also expected to increase sequentially by about $2m to $3m mostly due to field sales force expansion and a slight increase in advertising in connection with the Pentium III launch. Yet another blow to the already troubled quarter is a previously-announced charge of roughly $4m stemming from the consolidation of its operations in Japan to its Idaho headquarters. Analysts surveyed by First Call had been expecting the company to post earnings of $0.15 per share. In the year-ago period, Micron showed a profit of $24.8m, or $0.26 a share, on revenue of $494.8m. On the bright side, however, the company says it is seeing solid growth in its mid-market PC business, with second-quarter sales expected to grow by more than 20% sequentially. As its mid-market business strategy continues to build momentum, Micron expects its business mix to shift progressively from consumer sales to commercial and government sales. Micron will announce full results for the second quarter on March 22.

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