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Micron beats estimates

The computer maker reports earnings of $11.7 million for its fiscal first quarter, a result of record shipments of PCs.

Computer maker Micron Electronics posted profits and record unit shipment volume for its first fiscal quarter today, but analysts wonder whether the company will be able to break into the top rank of PC companies.

Micron Electronics reported earnings of $11.7 million, or $0.12 per diluted share, on net sales of $403.5 million for the quarter ended December 3, 1998. Micron slightly bettered the consensus estimate of earnings of 11 cents a share, according to First Call. Last year, the company reported earnings of 1 cent a share on sales of $559 million.

The earnings came as a result of record shipments of PCs, the company said. Shipments of desktop PCs grew 15 percent from the previous quarter, and overall shipments increased 21 percent. Notebook sales increased 74 percent over the previous quarter, but these gains were offset by flat sales results for its server products, which Micron said was due to "supply issues."

As a part of an ongoing effort to cut costs, the company said it will pull back from the Japanese market, resulting in a non-recurring charge of approximately $3.2 million in the second fiscal quarter of 1999.

"[The Japanese operation] has been a drag on earnings and a distraction since its launch two years ago," stated Joel Kocher, Micron's CEO. "When the time is right, internationally we will prioritize Europe over Japan," he said, noting that in Europe the company will stick with its direct sales model, while in Japan it will employ resellers.

Today's earnings follow last quarter's positive surprise when the company beat Wall Street estimates with earnings of $16.2 million, or 17 cents a share.

Enthusiasm for the company's long-term outlook, however, is heavily tempered. Although the company has been making progress on the turnaround strategy imposed when CEO Joel Kocher took over the company last year, the PC market itself remains intensely competitive. Consumers and businesses appear to be flocking to the four to five largest brand names in the market. Direct vendor Micron is not one of them.

Questions remain about how Micron intends to close the gap even with Gateway and Dell Computer, which are currently the largest direct vendors.

"They have to get people to care about Micron and spend money" on their machines, said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison, who has a "hold" rating on the stock.

For the most part, Micron's answer is in the marketing. The company last year launched a dramatic personality change with its "New Rules New Tools" campaign to woo "power users" from small and medium-sized businesses. Many of Micron's executives, including Kocher, hail from the defunct Power Computing. And, like that company's past campaigns, Micron's new pitch is heavy on attitude and irony.

Kocher said "We can't just be another vendor throwing a box at small and meium-sized businesses." Already, the company's focus on marketing is showing early signs of paying off, he said.

As part of its marketing blitz, Micron unveiled a new $1 million commercial campaign that will debut December 28th on the Internet first, and later on a Micron-sponsored college football bowl game. The commercials feature Jeri Ryan, an actor from the cast of the TV show Star Trek Voyager. It is one of the most popular TV shows among PC buyers, according to research conducted by Micron.

To be sure, marketing will help boost demand, but the company continued to bring down operating expenses in order to be more profitable. Micron said that general operating expenses were down to 13 percent in the first quarter compared to 16.8 percent for the previous quarter. The company also reduced inventory levels to the equivalent of seven days sales, down from 11 the previous quarter.

Micron stock closed at 21.375, an increase of 2.70 percent, after trading as high as 22.125.