Strong sales help Micron along road to recovery

The No. 3 direct seller of personal computers says fiscal third-quarter profit fell 32 percent but sales rose, as the company continues to recover from past woes.

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Micron Electronics said today fiscal third-quarter profit fell 32 percent, as the No. 3 direct seller of personal computers continues to change its business to provide Internet-related services.

Micron's profit from operations for the quarter fell to $4.76 million, or 5 cents a share, from net income of $6.98 million, or 7 cents, a year earlier. Revenue in the period ended June 1 rose 13 percent to $369.5 million from $327.7 million.

Still, the Idaho-based company beat analysts' expectations of a 3-cents-per-share profit forecast by analysts polled by First Call/Thomson Financial.

Today?s results indicate some progress for Micron on a long road to fiscal turnaround. Two recent initiatives appeared to be working for the PC maker: a program selling systems through retail kiosks, and a Web hosting operation with the company?s Subscription Computing program.

"Though we are still early in the re-emergence stage and certainly (have) work left to do, we believe the company should be credited for forming a very core strategic position into an exciting new set of growth opportunities," said Micron CEO Joel Kocher in a call with financial analysts this morning.

The retail strategy, which the company yesterday named VelocityNet Direct, is essential to its re-emergence into the consumer PC market, Kocher said.

"Two years ago, our company depended too heavily on a dying techie...market, which constituted over half of our entire PC business in terms of sales," Kocher said. "This business was shrinking at a very rapid rate and was also unprofitable."

Kocher said that because Micron saw the market for selling high-end systems to PC enthusiasts as a dead end, the company has been "disinvesting for several quarters, to the detriment of our revenue results.

"Our strategy is to leverage footprint, retailer's brand and marketing reach, while providing them with a way to compete with Dell and Gateway," Kocher said.

PC shipments in the third quarter improved 18.9 percent over the previous quarter, with retail-direct and small-business sales up 80.9 percent. Desktop sales jumped 21 percent, sequentially.

Net sales for Micron?s PC operation were $246 million, compared to $283 million a year earlier and $243 million in the second quarter. Gross margins decreased to 13.1 percent, compared to 15.5 percent a year earlier and 13.4 percent in the previous quarter, the company said.

Micron's hosting business, known as HostPro, was a bright spot for the company. The operation reported net revenue was up 41.6 percent to $10.2 million, compared to the previous quarter. The unit's customer base increased 29 percent sequentially to more than 100,000 paid Web sites.

Micron owns the majority of its hosting infrastructure. The company set up its HostPro operation last year when it acquired Web hosting firm Lightrealm.

The computer maker's larger Subscription Computing program, which lets small businesses pay a monthly fee for PC systems, Internet access and Web hosting, reached "78,000 reoccurring revenue customers," Kocher said.

Micron's SpecTek memory business posted net sales of $114 million, up from $45 million year-over-year and $84 million, sequentially.

All three areas posted double-digit growth, said Kocher, who predicted continued improved performance for the units.

Bloomberg News contributed to this story.