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Micron reorganizes, claims loss

Micron Electronics is expected to announce a sweeping reorganization that will result in an operating loss and the transfer of 450 employees.

Direct-order computer vendor Micron Electronics (MUEI) has announced that, as part of a sweeping reorganization, it will shift approximately 10 percent of its employees from its computer manufacturing operations to parent company Micron Technologies while consolidating its server operations, as reported earlier by CNET's NEWS.COM.

As a result of the restructuring, Micron Electronics will report a significant operating loss for the current quarter, which ends Thursday, said sources close to the company.

But with the sale of its custom manufacturing center earlier in the quarter for $150 million, the company still is expected to post a net profit for the quarter.

"These actions position Micron Electronics as a leaner, more efficient company better prepared to compete effectively in a very competitive market," Micron CEO Joel Kocher said in a statement. "We have significantly reduced the level of our operating expenses, and believe we are in a better position to aggressively promote and price our high performance PCs to our target customer base."

Kim Brown, an analyst at Dataquest, approved of Kocher's streamlining efforts, but said that Micron still needs to address questions about its long-term viability. Even though Micron is growing, she pointed out, it is not growing as fast as Compaq or Dell, which means that Micron potentially will be at a disadvantage when it comes to buying components, or if a a consumer-level price war should erupt.

"They have got to figure something out," Brown said. "They don't have the additive growth rate."

Clearly, though, big changes are afoot at the Nampa, Idaho-based manufacturer, which changed management earlier this year when it appointed Kocher, formerly president of Power Computing, as its chief. Micron is one of a select number of second-tier vendors that must establish firmer market segments or face possible consolidation in an ever-burgeoning computer market, analysts said.

As part of its revival strategy, Micron will focus on small-business computer users and government sales, a strategy that will shift it away from competing head-to-head against large-scale enterprise vendors such as Compaq, and toward competition with Gateway 2000.

Today's announcements are designed to organize the company around a tighter operation. The 450 employees shifted to the parent company will leave the subsidiary with a total of roughly 4,000 workers.

Micron also will transfer its NetFrame server operation, acquired last summer, from Silicon Valley to the Nampa headquarters. Additionally, Micron will make a series of announcements regarding new executive appointments.

The operating loss primarily is due to excess inventory of notebook computers. Overly aggressive forecasts of notebooks sales over the past two quarters apparently led to an inventory glut.