State economists nervous in face of Micron losses

BOISE – With the state’s largest private employer reporting big losses and hinting at downsizing, state economists are watching carefully to see how the news will impact the state budget.

“When Micron sneezes, we get a cold, and they’re sneezing,” said Mike Ferguson, chief economist for Gov. Butch Otter. However, he said the still-healthy state budget may not suffer because current economic forecasts already anticipated a downturn in the high-tech sector of Idaho’s economy in the coming fiscal year, which begins today.

“We’ve got some decline factored in,” Ferguson said.

Micron Technology Inc., which makes semiconductor devices, announced a $225 million net loss on Thursday for the third quarter of fiscal 2007, on net sales of $1.3 billion. The company also said it’s “pursuing a number of initiatives to drive greater cost efficiencies and revenue growth across its operations.”

Those could include moving some production closer to global customers, outsourcing and moving to leverage the company’s key technologies.

“While some of these initiatives will be affected immediately, others will take multiple quarters to implement,” Micron said in announcing the loss.

Still unclear is how many Idaho jobs could be lost.

In 2003, Boise-based Micron laid off about 1,100 employees – 10 percent of its Idaho work force. But the area’s economy weathered that “pretty well,” said Boise economist John Church.

“Today, 10 percent of their work force here, another 1,100- or 1,300-job cutback, probably wouldn’t be that big a deal to the Boise economy. It’s growing very rapidly, so it probably would absorb that pretty readily,” Church said. “On the other hand, if it were to be 20 percent or more, that’s troublesome.”

Ferguson noted that before Micron’s announcements, rumors suggested the company would lay off 500 to 5,000 workers – but no such announcement came. “The earnings were a little worse than expected,” he said, “but they weren’t expected to be good, because prices are really very unfavorable.”

Micron attributed the loss to “severe price declines across most memory products.”

Prices for DRAM memory, a key Micron product, fell 35 percent during the quarter. The company’s sales of NAND Flash memory products in the third quarter were actually up 75 percent in gigabytes compared to the second quarter, but the prices for those products fell 30 percent at the same time.

The state budget is running an $85 million surplus for the fiscal year that’s about to end, thanks to strong individual income tax revenues, and at least part of that is expected to surface in the new year.

“We’re essentially in a structural balance,” Ferguson said. “It would take a pretty big hit to throw us off of that.”

The state economic forecast anticipates that the computer and electronics sector will see a 4 percent decline in the coming year and lose about 600 jobs.

“So at this point I’m not real worried in terms of this making a material change to our economic outlook or our revenue outlook, but it’s something we constantly assess,” Ferguson said. “It sounds like it’s going to unfold over time. … We got the direction right, but it’s an open question as to the magnitude.”