THE DAY AHEAD: Micron Technology''s quarter could have been worse
COMMENTARY -- As you pick through the rubble of yet another round of nonstop profit warnings from technology companies, you can't help but notice Micron Technology (NYSE: MU), which is so used to volatile markets that it can make an earnings miss look good.
Micron Technology missed estimates in its first quarter with earnings of 58 cents a share, two pennies below First Call consensus. Revenue of $1.8 billion fell well short of estimates. Analysts had been lowering projections for the last three days. The downgrades were flying ahead of the results.
So how can Micron's first quarter be viewed as good news?
Micron plays in a volatile market -- dynamic access random memory (DRAM) -- where wackiness is simply expected. Yes, we know memory prices have collapsed in recent months. We also know that Micron is very efficient and can weather downturns with the best of them.
Wall Street analysts apparently agree. In a slew of research reports Thursday morning, analysts flagged inventory worries and a bleak short-term outlook, but maintained "buy" ratings based on the theory that things will improve in the second half of 2001.
Most analysts sound like Merrill Lynch's Joe Osha. He cut his fiscal year estimates dramatically, but followed up with a positive outlook. "We continue to believe that Micron is further consolidating leadership in the DRAM business, and that supply in 2001 will be insufficient to create a sustained pricing crisis in DRAM," he said.
Simply put, Micron looks OK as long as there isn't a full-blown memory crisis. Osha's price target is $70. In fact, Micron's earnings miss actually topped some analysts' projections. The estimates for Micron were falling so fast that the company would have probably beaten consensus if it waited a few days to report earnings.
On Micron's conference call, there was a surreal business-as-usual tone to the quarter. No worries about memory prices -- Micron will deal with it. CEO Steve Appleton even had the audacity to proclaim the earnings miss showed "a very strong quarter." Micron keeps delivering in one wacky cyclical market. It's comfortable with its market, business model and ability to execute. Give Micron some credit.
On that same theme, take a look at RealNetworks (Nasdaq: RNWK). As you gasp at the plunging shares and "neutral" ratings today, remember to step back and take a deep breath.
RealNetworks should be able to weather the downturn well. For starters, it has cash. It has a big market. And it has a diversified revenue stream of software licensing, services and advertising. Yes, online advertising stinks right now, but who didn't know that already?
The company will miss estimates with a fourth quarter profit of 2 cents a share. Revenue will also fall short of expectations in the fourth quarter and fiscal 2001 by about $30 million to $40 million. In the long run, however, RealNetworks has the tools to be a player, if you'll excuse the pun.
CEO Rob Glaser said he was confident in the company's business model -- nice to see at least one Internet CEO is sticking to his game plan. "It's hard to say how long the turmoil will last, but we are comfortable with our model," said Glaser. "We will weather this and get through it."
There will be no near-term catalysts for RealNetworks shares, but the company will survive.
AT&T's latest debacle
Here's a quiz: What has you most annoyed about AT&T (NYSE: T)?
- The fact that AT&T lowered revenue and earnings estimates again as the fundamentals of Ma Bell collapse.
- The fact that your grandmother, who still may own Ma Bell, will see her dividend cut by 83 percent.
- The fact that the company has tons of debt because it botched its broadband dreams.
- The fact that its break-up plan is a lame attempt at "shareholder value."
- All of the above.
Chances are you chose all of the above. AT&T's first dividend cut in its history is a big issue. Companies that cut dividends are usually in financial distress (Ma Bell needs cash).
But the big thing is that AT&T's fundamentals are eroding monthly. AT&T, citing "industry-wide pricing pressures" for long distance, said revenue growth in the quarter will be 2.5 percent to 3 percent, down from already-lowered guidance of 4 percent to 5 percent.
I'll buy the industry-wide part for a few minutes because Worldcom (Nasdaq: WCOM) and Sprint (NYSE: FON) also recently issued profit warnings. But AT&T has been lowering its growth targets all year -- well before any of its rivals ever saw any "industry-wide" problems.
TDAIN
• Micron Technology falls short
• RealNetworks dinged by online ad slowdown
• AT&T cuts growth outlook -- again
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