Monday, December 9, 2002
It was the best of times; it was the worst of times. It was the Tale of Two Micron corporations that unfolded at last month's International Trade Commission hearing in the countervailing duty case against Korean DRAM makers.
Depending on which side of the fence you were on, Micron Technology Inc. was portrayed as either financially strong or hurting badly. About what you would expect in adversarial presentations at the ITC on whether the U.S. DRAM industry was injured by allegedly illegal Korean government subsidies to Hynix Semiconductor Inc. and Samsung Electronics Co.
The ITC is concerned principally with injury to the domestic DRAM companies. The other elements of the case, government subsidies including $11.9 billion in allegedly illegal support to Hynix, will be decided by the U.S. Commerce Department.
At the ITC hearing Hynix attorneys tried to use Micron's own financial statements to the press and investors against the firm. Quoting Micron Chairman and President Steve Appleton in a 2002 Year in Review report: "As the strongest player in our arena, Micron is well-positioned to compete in this difficult environment." Again in a July interview, "We have a good cash balance. I think we're in as good a shape as anybody."
But Appleton's testimony to the ITC hearing took a different view. "Micron is at a dangerous point in our corporate life -- We lost nearly $1 billion in fiscal 2001 and nearly $1 billion in fiscal 2002," he said.
From Micron's complaint to the ITC and U.S. Commerce Department: "In the case of Micron, its gross margin in FY 2001 reached a 10-year low of just 2.8%. Micron's financial results for fiscal year 2002 were even worse. Micron's gross margin in fiscal 2002 was negative 4.3%. One of the world's most efficient DRAM producers is, effectively, barely able to cover its cost-of-goods-sold and forced to rely on increasing debt and drawdowns of dwindling cash reserves to sustain research and development."
Hynix lawyers countered with Appleton's 2002 Year in Review statement: "We ended fiscal 2002 with approximately $1.2 billion in cash and marketable securities. Micron has maintained one of the strongest balance sheets in the industry."
Obviously, Micron is caught in the middle of two cross-currents. On the one hand, the No. 2 global DRAM producer must put its best foot forward to court investors and support the price of its stock. On the other side, it must convince the ITC that the firm has been severely impacted by the Korean actions.
The stakes are high: even if Commerce determines that the Korean government did provide illegal subsidies to the country's DRAM makers, Micron would lose its case if the ITC found the firm had not suffered any injury.
Regarding the disparate statements, a Micron spokesman said the firm was able to raise money to bolster its financial position several years ago when the DRAM market was favorable. However, he claimed the Korean subsidies allowed Hynix and Samsung to cut DRAM prices sharply depressing the global market.
He said Micron is coping financially with market conditions, "but the company lost nearly $2 billion in the last two fiscal years, which wouldn't have been the case in a more normalized market."
Interesting as the juxtaposition of Micron financial comments may appear, the ITC decision won't be made on the basis of a few conflicting statements. The six month ITC review will delve into excruciating minutia of financial records, much of it confidential data.
And the ITC will be the final judge of Hynix' assertion to the Commission that gross profit (or loss) isn't the best indicator of injury to a domestic company.
By: DocMemory
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