Micron Electronics' shares fell 16 percent Tuesday morning after the direct personal computer vendor said it expects a second-quarter slowdown.
Micron Electronics (MUEI) said after the market closed Monday that its second-quarter income and sales will probably fall below what it achieved in its first quarter.
The company earned 12 cents a share in its first quarter, and analysts anticipated it would make 14 cents a share in its second quarter. Micron Technology said sales in the second quarter will fall 6 percent to 9 percent from its first quarter. Sales in the first quarter were $403.5 million.
Shares fell 2 7/16 to 12, while stock in its parent company, Micron Technology (MU), dropped 1 7/8 to 55 3/4 in trading Tuesday morning.
The company said the "late-quarter timing" of Intel's (INTC) Pentium III chip release, which was brought out for sale Friday, resulted in purchase deferrals.
Micron Electronics' Chairman and Chief Executive Joel Kocher said a large percentage of its customers are "power users" who want to wait for new technology and were tempted by Intel's promotion of its Pentium III processors.
"The major issue was Pentium III," Kocher said. "Unfortunately for us, the timing could not have been worse." But the company said it will probably benefit from Pentium III sales in its third quarter.
Consumer PC sales will also hurt Micron Electronics' gross margins, or profit as a percentage of sales, in the segment, executives said.
The company sees gross margins from its consumer line at 14 percent in the second quarter vs. 15 percent in the previous quarter. Executives said pricing competition heated up during the quarter with computer sellers Compaq (CPQ) and Dell (DELL) in the consumer and small office and home office market.
Computer stocks have been the victims of selloffs over the past few days as investors worry that sales and profits aren't going to be up to par during the quarter.
Although Micron Electronics is a smaller player in consumer PC sales, news of pricing problems could give investors shivers.
In the future, Micron plans to orient its business more on commercial and business sales, the company said. Kocher said Micron will be "above market growth" in its fourth quarter.
Expenses will also be $2 million to $3 million higher in the second quarter as compared with the first quarter, Micron Electronics said. The company cited higher costs for beefing up its sales force and ad budget.
Written By Tiare Rath, CBS MarketWatch