Samsung Expected To Pay Micron $40 Million in Q2 for Licensing Deal

Lexar Media parent Micron Technology expects Samsung to pay it $40 million in Q2 and $35 million in Q3 under a cross-license patent deal, after paying $200 million in Q1 ended Dec. 2, Micron Chief Financial Officer Ronald Foster said in an earnings call Thursday. Despite the Q1 gain from Samsung’s payment, Micron reported weaker profit than a year earlier.

Micron CEO Steve Appleton said in the previous earnings call that he expected Samsung would pay his company $275 million total “during the next couple of quarters” under the 10-year deal (CED Oct 12 p4). The agreement called for Samsung to pay Micron $200 million in Micron’s Q1, $40 million by Jan. 31, and the rest by March 31, Micron said in a filing at the SEC. The license was described by Micron as “a life-of-patents license for existing patents and applications, and a 10-year term license for all other patents."

Micron’s Q1 profit narrowed to $155 million, 15 cents per share, from $204 million, 23 cents, a year earlier. But revenue increased to $2.3 billion from $1.7 billion in Q1 last year. R&D expense fell in Q1 from Q4 “due to lower levels of development spending on 50 nanometer and 42 nanometer DRAM products as additional products move out of development and into commercial volume production,” said Foster. The company had about $570 million in capital spending in Q1, and spent $635 million to retire debt, ending the quarter with cash and investments of $2.4 billion, it said.

Q2 revenue from sales of DRAM memory tumbled 19 percent from Q4 because of a 23 percent decline in average selling prices, Micron said. The ASP decline was “partially offset” by a 5 percent dip in unit sales volume, it said. Revenue from sales of NAND flash memory grew “slightly” from Q4 because of a 20 percent rise in unit sales volume, though that was partly offset by a 15 percent drop in ASPs, it said. Gross margin in Micron’s memory business segment was 26 percent in Q1, down from 37 percent in Q4, mainly from the declines in ASPs, “partially offset by decreases in manufacturing costs,” it said.

The company reorganization necessitated by Micron’s buying Numonyx is “still ongoing,” Foster also said. “We expect to have it completed and in place for reporting of our second quarter results,” he said. Numonyx was one of the world’s largest suppliers of flash memory and the No. 1 supplier of NOR flash memory. Margins in the Numonyx business, “over the past quarter, have demonstrated good stability and decreased only slightly” from Q4, Foster said. Looking ahead to Q2, he said, “We expect to see revenue from the Numonyx business in the low $500 million range, which reflects a seasonal decline compared to the first quarter."

Micron’s NAND 25-nanometer transition is “going quite well, and I think we would characterize it as being ahead of schedule,” said Appleton. He said in the earlier earnings call that Micron started to see some softening in the PC space for DRAM. “That weakness has continued,” Appleton said Thursday. “What we are experiencing right now is a demand-driven weakness as opposed to a supply-side driven weakness,” he said. Micron is “seeing weakness in the more commoditized space, in particular the PC space,” Appleton said. But he said this was also “seasonally a slower time of the year for” Micron. “We might be in a period of time here where we have a quarter or two, or a three to six-month period where pricing is” in a lower range than usual for DRAM, he said. In NAND, on the other hand, “it appears that we've already hit bottom and price has recovered mildly,” Appleton said. “There are some pretty bright spots,” he said. Solid state drives, “in particular, for us have gone well and the smartphones are holding up pretty well,” Appleton said. “I think that’s a benefit to the DRAM” market also, but the company has to “see what happens as we move through the rest of the season."

Tablets, meanwhile, “have taken on a pretty healthy projected output” for the NAND business, said Mark Adams, vice president of worldwide sales. About 10 percent of overall NAND capacity in the industry “will go to tablets in 2011,” he predicted.