Micron deals CMC a devastating blow

CMC Industries, Inc. announced last night that Micron Electronics, Inc. will terminate it relationship CMC because of a strategy change. Micron accounted for 21 percent of CMC's revenue during its last fiscal year. CMC shares had closed down 31 cents at $10.81 yesterday before the announcement.

In a press release sent out at 7:57 pm EST last night, the Santa Clara-based computer-manufacturing contractor said that Micron told CMC that it made the decision because of "changes in the PC marketplace and the business approach that Micron feels it must take at this time."

CMC also indicated that the decision "may have a material adverse effect on the Company's business and results of operations in the current and future fiscal quarters."

In the fiscal year ending July 31, 1997, about 21 percent of CMC's sales were to Micron, accounting for $45.4 million of CMC's annual sales of $214.5 million.

For the most-recent quarter, Micron accounted for 42 percent of CMC's business.

In October, CMC surprised analysts by 64 percent by reporting earnings of $1.3 million, or 18 cents per share. During this quarter, sales to Micron totaled $38.1 million out of CMC's total revenue of $90.6 million.

Wall Street had expected CMC to report a profit of 19 cents per share for the quarter ending in January 1998 and 73 cents for the fiscal year ending in July 1998.

Most analysts who cover CMC stock had recommended it as a "buy" to investors before the announcement.

In its most-recent quarterly SEC filing, CMC warned that it was especially vulnerable to short-term business developments and that "any material delay or cancellation of customer orders could have an almost immediate material adverse effect on the Company's operating results." The filing also explained that many of CMC's short-term expenses are paid for based on future revenues and that it $25 million line-of-credit to cover these expenses was tied to the company's financial condition.

Micron Electronics Inc. reported disappointing earnings on Dec. 15, saying that its first-quarter net income fell to $1.1 million, or $0.01 per share, from $24.8 million, or $0.27 per share, in the year-earlier period.

"Sales in the first quarter of fiscal 1998 did not meet our expectations," Joseph M. Daltoso, chairman and chief executive of Micron Electronics, said in a statement, adding that "resulted in higher levels of PC inventories during the quarter." Micron Technology Inc. of Boise, Idaho, owns 60 percent of Micron Electronics.