MICRON ELECTRONICS INC, 424B5, 1997-01-24

MICRON ELECTRONICS INC
424B5, 1997-01-24
ELECTRONIC COMPUTERS

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FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-14035

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION AND AMENDMENT. +
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SUBJECT TO COMPLETION, DATED JANUARY 24, 1997
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 21, 1996

13,500,000 SHARES

[LOGO OF MICRON ELECTRONICS, INC.(TM)]

COMMON STOCK
(PAR VALUE $0.01 PER SHARE)

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Of the 13,500,000 shares of Common Stock offered hereby, 3,000,000 shares are
being sold by the Company and 10,500,000 shares are being sold by the Selling
Shareholders. See "Selling Shareholders". The Company will not receive any
proceeds from the sale of the shares being sold by the Selling Shareholders.

SEE "RISK FACTORS" ON PAGE S-7 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.

The last reported sale price of the Common Stock which is quoted under the
symbol "MUEI" on the Nasdaq National Market on January 23, 1997 was $22 5/8 per
share. See "Price Range of Common Stock and Dividend Policy".

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) SHAREHOLDERS (2)
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting estimated expenses of $222,000 payable by the Company and
$778,000 payable by Micron Technology, Inc., a Selling Shareholder.
(3) The Company and a Selling Shareholder have granted to the Underwriters an
option for 30 days to purchase up to an additional 2,025,000 shares at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such option is exercised in full, the
total initial public offering price, underwriting discount, proceeds to the
Company and proceeds to Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting".

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The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about February , 1997, against payment therefor in immediately available
funds.

GOLDMAN, SACHS & CO. DEUTSCHE MORGAN GRENFELL
MONTGOMERY SECURITIES ROBERTSON, STEPHENS & COMPANY

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The date of this Prospectus Supplement is February , 1997.
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MICRON, THE MICRON ELECTRONICS LOGO, MILLENNIA, TRANSPORT, HOME MPC,
CLIENTPRO, PICK-A-POINT, VETIX AND SPECTEK ARE TRADEMARKS OF THE COMPANY, AND
ZEOS AND COMPUTERS NOW! ARE REGISTERED TRADEMARKS OF THE COMPANY. MICRON POWER
IS A SERVICE MARK OF THE COMPANY. ALL OTHER TRADEMARKS INCLUDED IN THIS
PROSPECTUS SUPPLEMENT ARE THE PROPERTY OF THEIR RESPECTIVE HOLDERS.

----------------

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

S-2
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus Supplement, including information incorporated by reference in
the accompanying Prospectus. Unless otherwise indicated, all information in
this Prospectus Supplement assumes that the Underwriters' over-allotment option
is not exercised. As used in this Prospectus Supplement, unless otherwise
indicated, references to the "Company" and "MEI" are to Micron Electronics,
Inc. and its consolidated subsidiaries, and references to "MTI" are to the
Company's parent, Micron Technology, Inc. and its consolidated subsidiaries.
The most recent fiscal year of the Company ended on August 29, 1996. As used in
this Prospectus Supplement, unless otherwise indicated, all yearly references
are to the Company's fiscal years ended August 29, 1996, August 31, 1995 and
September 1, 1994. All tabular dollar amounts are stated in thousands.

This Prospectus Supplement contains trend information and forward-looking
statements that involve risks and uncertainties. The actual results of
operations of the Company could differ materially from the Company's historical
results of operations and those discussed in such forward-looking statements as
a result of certain factors set forth under "Risk Factors" and elsewhere in
this Prospectus Supplement or the accompanying Prospectus, including
information incorporated by reference in the accompanying Prospectus.

THE COMPANY

The Company is a leading provider of PC systems through the direct sales
channel in the United States. The Company's PC operation develops, markets,
manufactures, sells and supports a range of memory-intensive, high performance
desktop and notebook PC systems and network server products under the Micron
brand name. In addition to its PC operation, the Company has contract
manufacturing and component recovery operations. The Company's wholly-owned
subsidiary, Micron Custom Manufacturing Services, Inc. ("CMS"), is a contract
manufacturer specializing in the assembly of custom complex printed circuit
boards, memory modules and system level products. SpecTek, the Company's
component recovery operation, recovers, assembles, tests, grades and markets
reduced specification random access memory ("RAM") products. On April 7, 1995,
Micron Computer, Inc. ("MCI") and the former Micron Custom Manufacturing
Services, Inc. ("MCMS"), then subsidiaries of MTI, merged with and into ZEOS
International, Ltd. ("ZEOS") and the name of the combined company was changed
to "Micron Electronics, Inc." (the "MEI Merger").

THE OFFERING(1)

<TABLE>
<S> <C>
Common Stock offered by the Company.. 3,000,000 shares
Common Stock offered by the Selling
Shareholders........................ 10,500,000 shares
Common Stock to be outstanding after
the Offering(2)..................... 95,451,018 shares
Nasdaq National Market symbol........ MUEI
Use of proceeds...................... For general corporate purposes, including
capital expenditures and to meet working
capital requirements. See "Use of
Proceeds."
</TABLE>
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(1) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting."
(2) Based upon shares outstanding as of November 28, 1996. Does not include (i)
options outstanding as of November 28, 1996 to purchase approximately
1,914,000 shares of Common Stock granted pursuant to the Company's 1995
Stock Option Plan (the "1995 Option Plan") at exercise prices ranging from
$8.89 to $23.83 per share, (ii) approximately 3,086,000 additional shares
of Common Stock reserved for future issuance pursuant to the 1995 Option
Plan, (iii) options outstanding as of November 28, 1996 to purchase
approximately 43,000 shares of Common Stock granted pursuant to ZEOS' stock
option plan at exercise prices ranging from $2.63 to $10.75 per share and
(iv) approximately 2,364,000 shares reserved for future issuance pursuant
to the Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan").
See "Capitalization."

S-3
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
PRO PRO FISCAL QUARTER
ACTUAL FORMA(2) ACTUAL FORMA(2) ENDED
-------- -------- -------- ---------- -----------------
SEPT. 2, SEPT. 1, SEPT. 1, AUG. 31, AUG. 31, AUG. 29, NOV. 30, NOV. 28,
1993 1994 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:(1)
Net sales.............. $162,180 $412,938 $650,983 $999,999 $1,193,330 $1,764,920 $438,578 $421,018
Gross margin........... 32,335 86,295 104,839 183,337 209,578 261,185 58,712 80,450
Operating income....... 21,622 59,851 40,836 106,493 107,446 75,998 26,664 39,741
Net income............. 13,623 36,898 23,548 65,086 65,315 44,582 16,615 24,812
Earnings per share..... $ 0.17 $ 0.45 $ 0.26 $ 0.74 $ 0.70 $ 0.48 $ 0.18 $ 0.27
</TABLE>

<TABLE>
<CAPTION>
AS OF NOVEMBER 28, 1996
------------------------
ACTUAL AS ADJUSTED (3)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $139,803
Total assets.......................................... 562,234
Total debt(4)......................................... 25,059
Shareholders' equity.................................. 253,268
</TABLE>
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(1) On April 7, 1995, MCI and MCMS, then subsidiaries of MTI, were merged with
and into ZEOS, and the surviving corporation's name was changed to "Micron
Electronics, Inc." The Company's fiscal year is a 52 or 53 week period
ending on the Thursday closest to August 31, which was the fiscal year of
MCI and MCMS. A new basis of accounting, based on fair values, was
established for the assets and liabilities of ZEOS. Subsequent to the MEI
Merger, the Company's financial statements reflect the consolidated results
of operations, financial position and cash flows of the Company based on
the new basis of accounting for the assets and liabilities of ZEOS and the
historical cost bases for the assets and liabilities of MCI and MCMS. Prior
to the MEI Merger, the financial statements of the Company include only the
combined results of operations, financial position and cash flows of MCI
and MCMS.
(2) Reflects the Company's results of operations on a pro forma basis, as if
the MEI Merger had occurred at the beginning of fiscal 1994 after giving
effect to pro forma adjustments, including amortization of goodwill,
certain product and process technology costs and related income tax
effects. The pro forma information is provided for illustrative purposes
and is not necessarily indicative of the combined results of operations
that would have actually occurred for such periods.
(3) Adjusted to reflect the issuance and sale by the Company of the 3,000,000
shares of Common Stock offered by the Company hereby.
(4) Total debt includes all interest bearing debt of the Company and its
subsidiaries.

S-4
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THE COMPANY

The Company, a majority-owned, publicly traded subsidiary of Micron
Technology, Inc. ("MTI"), is a leading provider of personal computer ("PC")
systems through the direct sales channel in the United States. The Company's
PC operation develops, markets, manufactures, sells and supports a range of
memory-intensive, high performance desktop and notebook PC systems and network
servers under the Micron brand name. In addition to its PC operation, the
Company has contract manufacturing and component recovery operations. The
Company's wholly-owned subsidiary, Micron Custom Manufacturing Services, Inc.
("CMS"), is a contract manufacturer specializing in the assembly of custom
complex printed circuit boards, memory modules and system level products.
SpecTek, the Company's component recovery operation, recovers, assembles,
tests, grades and markets reduced specification random access memory ("RAM")
components.

The Company primarily receives orders for PC products via telephone,
facsimile and the Internet, and PC systems are generally shipped directly to
the end-customer. According to International Data Corporation ("IDC"), the
direct sales channel of the PC market in the United States is projected to
grow at a compounded annual growth rate of approximately 13.1% for the period
between 1996 and 2000. In fiscal 1995 and 1996, the Company's rate of growth
in PC sales exceeded the rate of growth in the overall direct sales channel,
principally as a result of increased market awareness and acceptance of its
products. As a result, during that period the Company increased its market
share in the direct sales channel. According to a recent study conducted by
IDC, the Company is the third largest supplier of PC systems in the direct
sales channel and ninth largest in the overall PC market in the United States.

By focusing on the direct sales channel, the Company can avoid dealer
markups typically experienced in the retail sales channel, limit inventory
carrying costs and maintain closer contact with its target markets. In
addition, this model allows the Company to be more responsive to changes in
consumer demand and quickly bring to market new products and technologies
utilizing the most advanced commercially available components in PC related
technology. The Company believes that direct contact with its customers
enables the Company to obtain valuable market feedback as well as generate
customer loyalty. The Company's assemble-to-order sales and manufacturing
structure enables customers to order custom system configurations by providing
customers with a wide range of available features and components.

The Company's direct marketing approach is aimed toward PC users who
evaluate products based on performance, price, reliability, service and
support. The Company's customer base is comprised primarily of individuals,
small to medium-sized businesses and governmental and educational entities.
The Company markets its PC systems primarily by strategically placing
advertisements in PC trade publications, submitting its products for review
and evaluation by these publications and advertising its products on its home
page on the Internet. The Company also markets its PC systems through direct-
mail campaigns and sells a limited number of PC systems through its three
factory stores located in Idaho, Minnesota and Utah. In addition, the Company
sells its PC systems to governmental agencies through the U.S. Government's
General Services Administration's Vendor program and through strategic
relationships with third parties having large government procurement
contracts. Pricing and terms for such procurement contracts are generally
subject to renegotiation or termination by third parties and governmental
entities.

The Company develops its PC systems to take advantage of components
incorporating the latest developments in the PC industry. The Company's PC
systems use Pentium and Pentium Pro microprocessors manufactured by Intel
Corporation ("Intel") and are assembled to order with differing memory and
storage capacities as well as operating and applications software. The Company
also offers a variety of peripheral products with its PC systems, including
monitors, modems, graphics cards, accelerators, CD-ROM drives and printers.
The Company believes that its relationship with MTI has allowed it to quickly
bring to market the latest advancements in semiconductor memory products.

S-5
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CMS is a contract manufacturer specializing in the assembly of custom
complex printed circuit boards, memory modules and system level products. CMS
establishes strategic relationships with original equipment manufacturer
("OEM") customers to provide turnkey manufacturing and other related services
for cost-effective solutions to their manufacturing requirements. The
Company's SpecTek memory products operation generally recovers, assembles,
tests, grades and markets reduced specification RAM components for a wide
variety of applications such as PC systems and peripherals, telephone
answering machines, electronic games and office equipment. The Company seeks
to maximize its return on sales of reduced specification RAM components and to
develop custom applications for certain of these devices with strategic OEM
customers.

S-6
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RISK FACTORS

An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. In addition to factors discussed elsewhere in this
Prospectus Supplement and incorporated by reference in the accompanying
Prospectus, the following are important factors which prospective investors
should carefully consider and which could cause actual results or events to
differ materially from those contained in any forward-looking statement made
by or on behalf of the Company.

GENERAL

FLUCTUATIONS IN OPERATING RESULTS

The Company's past operating results have been, and its future operating
results may be, subject to seasonality and other fluctuations, on a quarterly
and an annual basis, as a result of a wide variety of factors, including, but
not limited to, critical component availability, manufacturing and production
constraints, fluctuating component costs, fluctuating market pricing for PC
and semiconductor memory products, industry competition, the timing of new
product introductions by the Company and its competitors, availability of
nonstandard RAM components, inventory obsolescence, seasonal cycles common in
the PC industry, seasonal government purchasing cycles, the effect of product
reviews and industry awards, changes in product mix and the timing of orders
from and shipments to OEM customers. As a result, the operating results for
any particular period are not necessarily indicative of the results that may
occur in any future period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

MANAGEMENT OF GROWTH

In recent periods, the Company has experienced rapid revenue growth and an
expansion in the number of its employees, in the breadth and complexity of its
management, operating and financial information systems and in its geographic
scope of operations. This growth has resulted in new and increased
responsibilities for the Company's management and has placed, and continues to
place, significant demands upon the Company's management, operating and
financial information systems, technical support systems and other resources.
The Company continues to consider various expansion alternatives, including
expansion of facilities, acquisition of facilities in alternative geographic
regions and certain strategic relationships. The Company currently has plans
to expand its PC operation facilities in Nampa, Idaho and has recently
initiated a contract manufacturing operation in Penang, Malaysia. There can be
no assurance that the Company's management resources, operating and financial
information systems, technical support systems and other resources will be
adequate to support the Company's existing or future operations. Any failure
to effectively monitor, implement or improve the Company's operational,
financial, management and technical support systems could have a material
adverse effect on the Company's business and results of operations.

CONTROL BY MTI

As of November 28, 1996, MTI owned approximately 79% of the Company's
outstanding Common Stock, and after this offering, MTI will own approximately
66% of the Company's outstanding Common Stock. In addition, four of the eight
directors of the Company are also directors of MTI, including Steven R.
Appleton, Chairman and Chief Executive Officer of MTI. So long as MTI
continues to own a majority of the outstanding Common Stock of the Company,
MTI will have the ability to control the outcome of matters requiring
shareholder approval, including the election of directors, and generally will
have the ability to control the management and certain financial and other
affairs of the Company. Termination of certain of the Company's arrangements
by MTI or MTI exercising its control in negotiating arrangements resulting in
terms less favorable to the Company could adversely affect the Company's
business and results of operations. In the event that MTI's ownership of the
Company were to

S-7
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decrease below certain levels, certain of the Company's arrangements with MTI
could terminate, which could have a material adverse effect on the Company's
business and results of operations. See "Risk Factors--General--Intellectual
Property Matters," "Risk Factors--SpecTek Memory Products Operation--
Dependence on Component Recovery Agreement," "Certain Relationships with
Micron Technology, Inc." and "Selling Shareholders."

INTELLECTUAL PROPERTY MATTERS

It is common in the electronics industry for patent, trademark and other
intellectual property right claims to be asserted against companies, including
component suppliers and PC manufacturers. Periodically, the Company is made
aware that technology used by the Company may infringe on intellectual
property rights held by others. The Company evaluates all such claims and, if
necessary, obtains licenses for the continued use of such technology. The
Company has accrued a liability and charged operations for the estimated costs
of settlement or adjudication of asserted and unasserted claims for alleged
infringement prior to the balance sheet date. The Company would be placed at a
competitive disadvantage if it were unable to obtain such licenses upon terms
at least as favorable as those experienced by the Company's competitors. The
Company has entered into several patent and software license agreements, which
generally require one-time or periodic royalty payments and are subject to
expiration at various times. The Company is unable to predict whether any of
these license agreements can be obtained or renewed on terms acceptable to the
Company. If the Company or its suppliers are unable to obtain or provide
licenses necessary to use technology or software in their products or
processes, the Company may be forced to market products without certain
technological features or software, discontinue sales of certain of its
products or defend legal actions taken against it relating to allegedly
protected technology. The inability of the Company to obtain licenses
necessary to use certain technology, or an inability to obtain such licenses
on competitive terms, or any litigation determining that the Company, in its
manufacturing processes or products, has infringed on the intellectual
property rights held by others, could have a material adverse effect on the
Company's business and results of operations.

The Company, as a majority-owned subsidiary of MTI, benefits from certain
license agreements between MTI and third parties. The Company makes payments
to MTI relating to certain of such agreements. The Company's rights under such
agreements may terminate in the event that the Company is no longer a
majority-owned subsidiary of MTI. In the event of any such termination, the
inability of the Company independently to obtain such rights on similar terms
could have a material adverse effect on the Company's business and results of
operations.

In addition, MTI has allowed, and is currently allowing, the Company to use
certain of MTI's trademarks and patents, including the Micron brand name. Such
use by the Company has not been documented by a written license agreement.
There can be no assurance that the Company will continue to be able to use
such trademarks and patents in the future, particularly if the Company ceases
to be a majority-owned subsidiary of MTI. The Company's inability to use such
trademarks and patents in the future could have a material adverse effect on
the Company's business and results of operations.

INTERNATIONAL OPERATIONS

Approximately 5% of the Company's net sales for the first quarter of fiscal
1997, and approximately 10% of the Company's net sales for the fiscal year
ended August 29, 1996, were attributable to sales outside the United States.
Although the Company's international sales in the first quarter were adversely
affected by a decrease in sales of its PC systems through distributors in
Japan as the Company initiated direct sales of PC systems through its Japanese
call center, the Company believes international sales as a percentage of total
sales will increase in the future, particularly for PC systems and contract
manufacturing services. In marketing its PC systems in foreign countries, the
Company uses either direct selling or indirect selling through distributors,
depending on consumer

S-8
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preferences, local infrastructure, language and marketing methods. There can
be no assurance that the Company's primary sales and marketing methods through
the direct sales channel in the Japanese call center will result in sales at
levels that meet or exceed past levels of Japanese sales experienced by the
Company. The Company has established a contract manufacturing operation in
Penang, Malaysia, and the Company continues to evaluate the benefits and risks
associated with overseas manufacturing for its PC and contract manufacturing
operations. The new contract manufacturing operation in Malaysia completed its
first product shipment in the second quarter of fiscal 1997. There can be no
assurance that the establishment of the Japan and Malaysia operations or any
other international expansion will be successful, and any failure by the
Company to achieve success in international operations could have a material
adverse effect on the Company's business and results of operations. The
Company's international operations are subject to a number of other risks,
including, without limitation, fluctuations in the value of currencies, export
duties, import controls, trade barriers, restrictions on funds transfer,
greater difficulty in accounts receivable collections, political and economic
instability and compliance with foreign laws.

DEPENDENCE ON KEY PERSONNEL

The future success of the Company will depend, in part, on its ability to
attract and retain key management and technical personnel. The Company has
enhanced its respective management and technical expertise by recruiting
qualified individuals who possess desired skill sets and experience in certain
targeted areas. There is competition for such personnel in the electronics
industries, and the Company's inability to attract and retain sufficient
additional employees, particularly in the areas of engineering, information
technology and technical support resources, could have a material adverse
effect on the Company's business and results of operations. The Company does
not currently maintain "key man" life insurance with respect to any of its
employees. There can be no assurance that the Company will not lose key
personnel or that the loss of any key personnel will not have a material
adverse effect on the Company's business and results of operations.

CONCENTRATION OF OWNERSHIP OF COMMON STOCK OF THE COMPANY

Due to MTI's ownership of approximately 79% of the outstanding shares of the
Company's Common Stock as of November 28, 1996, and approximately 66%
following this offering, only a limited percentage of Common Stock of the
Company is traded in the public market, which limits the trading liquidity of
the Common Stock of the Company and may limit the Company's ability to
complete future equity financings. The sale on the open market of substantial
amounts of shares of Common Stock of the Company currently held by MTI could
adversely affect the prevailing market prices of Common Stock of the Company.
MTI's ability to sell shares of Common Stock of the Company, unless registered
under the Securities Act of 1933, as amended (the "Securities Act"), is
subject to volume and other restrictions pursuant to Rule 145 promulgated
under the Securities Act. In addition, MTI, the Company and certain officers
and directors of the Company have each agreed that they will not offer to
sell, contract to sell or otherwise dispose of any Common Stock of the
Company, for a period of 90 days after the date of this Prospectus Supplement,
except pursuant to the Company's stock option or purchase plans existing as of
the date of this Prospectus Supplement or other options granted by the Company
to employees, directors or consultants. See "Underwriting."

VOLATILITY OF STOCK PRICE

The trading prices of the Common Stock of the Company and the stock of other
companies primarily engaged in the PC industry have had a history of
significant volatility. The trading price of the Common Stock of the Company
is subject to significant fluctuations due to general market conditions in the
PC industry, announcements of technological innovations or new commercial
products by competitors, component availability and pricing, the significant
number of shares of Common Stock of

S-9
<PAGE>

the Company eligible for future sale into the public market or other factors.
The stock market generally has experienced significant price and volume
fluctuations, and such fluctuations have impaired stock prices for many high
technology companies. These broad market fluctuations, as well as general
economic conditions and the financial performance of the Company, may
adversely affect the market price of the Common Stock of the Company.

PERSONAL COMPUTER SYSTEMS

COMPETITION IN THE PC INDUSTRY

The PC industry is highly competitive and has been characterized by intense
pricing pressure, rapid technological advances in hardware and software,
frequent introduction of new products, low gross margin percentages and
rapidly declining component costs. Competition in the PC industry is based
primarily upon performance, price, reliability, service and support. The
Company believes that the rate of growth in worldwide sales of PC systems,
particularly in the United States, where the Company sells a substantial
majority of its PC systems, has declined and may remain below the growth rates
experienced in recent years. Any general decline in demand, or a decline in
the rate of increase of demand, for PC systems could increase price
competition and could have a material adverse effect on the Company's business
and results of operations. To remain competitive, the Company must frequently
introduce new products and price its products and offer customers lead times
comparable to its competitors. In addition, to remain competitive, the Company
generally reduces the selling prices of its PC systems in connection with
declines in its costs of components. The Company competes with a number of PC
manufacturers which sell their products primarily through direct channels,
including Dell Computer, Inc. and Gateway 2000, Inc. The Company also competes
with PC manufacturers, such as Apple Computer, Inc., Compaq Computer
Corporation, Hewlett-Packard Company, International Business Machines
Corporation and Toshiba Corporation among others, which have traditionally
sold their products through national and regional distributors, dealers and
value added resellers, retail stores and direct sales forces. Many of the
Company's PC competitors offer broader product lines, have substantially
greater financial, technical, marketing and other resources than the Company
and may benefit from component volume purchasing arrangements that are more
favorable in terms of pricing and component availability than the arrangements
enjoyed by the Company. In addition, as a result of PC industry standards, the
Company and its competitors generally use many of the same components,
typically from the same set of suppliers, which limits the Company's ability
to technologically and functionally differentiate its products. In the future,
the Company expects to face increased competition in the U.S. direct sales
market from foreign PC suppliers and from indirect domestic suppliers of PC
products that decide to implement, or devote additional resources to, a direct
sales strategy. In order to gain an increased share of the U.S. PC direct
sales market, these competitors may effect a pricing strategy that is more
aggressive than the current pricing in the direct sales market. The Company's
ability to continue to produce competitively priced products and to maintain
existing gross margin percentages will depend, in large part, on the Company's
ability to sustain high levels of sales and control inventory levels,
component cost and other operating expenses. Any failure by the Company to
transition to new products effectively or to accurately forecast demand for
its products may have a material adverse effect on the Company's business and
results of operations.

INVENTORY MANAGEMENT

The Company's ability to compete successfully in the PC market in the future
will depend in large part on its ability to effectively manage its inventories
of PC components. The Company's PC operations focus on the direct sale of
assemble-to-order PC systems that feature components incorporating the latest
technological developments in the PC industry. The Company experienced a
significant increase in the level of inventories in the fourth quarter of
calendar 1996. The Company has experienced in the past, and could experience
in the future, inventory obsolescence resulting from, among other things, the
fast pace of technological developments in the PC industry and the short

S-10
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product life cycles of PC systems and components. In addition, because high
volumes of quality components are required for the manufacture of the
Company's PC systems, the Company has experienced in the past, and expects to
experience in the future, shortages and other supply constraints of key
components. Such shortages or supply constraints have in the past adversely
affected, and could in the future adversely affect, the Company's ability to
ship products on schedule or at expected gross margins. To be successful in
the future, the Company must accurately anticipate demand for its products and
obtain adequate supplies of components to meet such demand. The failure of the
Company to manage its inventories effectively could result in inventory
obsolescence, excess inventories, component shortages and untimely shipment of
products, any of which could have a material adverse effect on the Company's
business and results of operations.

From time to time, the Company has been unable to obtain sufficient
quantities of certain critical components to permit the Company to meet demand
for its products. Sales of PC systems in the first quarter of fiscal 1997 were
adversely affected by shortages of certain Intel Pentium Pro microprocessors
and certain high-performance disk drives. There can be no assurance that
imbalances between supply and demand for microprocessors or any other critical
components will not occur in the future or that the Company will be able to
obtain these components from Intel or other parties in quantities sufficient
to meet demand within the near or longer term at competitive prices or at all.
In the event that these components are unavailable to the Company in
sufficient quantities at competitive prices in the future, the Company may
need to modify its product offerings, which, in turn, could adversely affect
the Company's business and results of operations.

SHORT PC PRODUCT LIFE CYCLES

To maintain a competitive position in the PC industry, the Company must
introduce new products and features that address the needs and preferences of
customers in its target markets. The PC industry is characterized by short
product life cycles resulting from rapid changes in technology and consumer
preferences and declining product prices. To remain competitive, the Company
must frequently introduce new products and features. There can be no assurance
that these products or features will be successful, that the introduction of
new products or features by the Company or its competitors will not materially
and adversely affect the sale of, or gross margins on, the existing products
of the Company or that the Company will be able to adapt to future changes in
the PC industry. The Company does not maintain a significant research and
development group. Instead, the Company strives to work closely with PC
component suppliers and other technology developers to evaluate the latest
developments in PC-related technology. There can be no assurance that the
Company will continue to have access to new technology, will be successful in
incorporating new technology in its products or will be able to deliver
commercial quantities of new products or features in a timely and cost-
effective manner.

DEPENDENCE ON KEY SOURCES OF SUPPLY

The Company purchases substantially all of its PC components and
subassemblies from suppliers on a purchase order basis and generally does not
have long-term supply arrangements with its suppliers. Certain components,
subassemblies and software included in the Company's PC systems are obtained
from sole suppliers or a limited number of suppliers. The microprocessors used
in the Company's PC systems are manufactured exclusively by Intel. In
addition, the Company currently purchases a significant majority of its
motherboards from a single source. A significant portion of the RAM components
used in the Company's PC systems are supplied by MTI, and the Company expects
to continue to rely on MTI as its primary source of RAM components. The
Company focuses on providing PC systems that feature components incorporating
the latest technological developments in the PC industry, which components are
periodically in short supply and are available from sole or a limited number
of suppliers. As a result, the Company has experienced in the past, and
expects to experience in the future, shortages in the components and
subassemblies used in its PC systems. From time to time, the Company has been
unable to obtain sufficient quantities of certain

S-11
<PAGE>

Intel microprocessors. Sales of PC systems in the first quarter of fiscal 1997
were directly affected by shortages of certain Intel Pentium Pro
microprocessors and certain high-performance disk drives. The Company relies,
to a certain extent, upon its suppliers' abilities to enhance existing
products in a timely and cost-effective manner, to develop new products to
meet changing customer needs and to respond to emerging standards and other
technological developments in the PC industry. The Company's reliance on a
limited number of suppliers and on a strategy of incorporating the latest
technological developments into its PC systems involves several risks,
including the possibility of shortages and/or increases in costs of
components, subassemblies and software, and risk of reduced control over
delivery schedules, which could have a material adverse effect on the
Company's business and results of operations.

The Company's TransPort notebook PC systems are currently assembled by a
single third-party manufacturer. This outsourcing arrangement and any future
outsourcing arrangements that the Company may enter into may reduce the direct
control the Company has over certain components and the assembly of such
products. It is uncertain what effect such limited control will have over the
quality of the products manufactured, the Company's ability to ship such
products on a timely basis or the flexibility of the Company to respond to
changing market conditions. Moreover, although arrangements with such
manufacturers may contain provisions for warranty obligations on the part of
such manufacturers, the Company remains primarily responsible to the consumer
for warranty obligations. Any unanticipated product defect or warranty
obligation, whether pursuant to arrangements with third-party manufacturers or
otherwise, could adversely affect the Company's business and results
of operations.

STATE TAXATION

Several states have enacted legislation which would require out of state
direct marketers to collect and remit sales and use taxes based on certain
limited contacts with the state. Taxation authorities in certain states have,
from time to time, solicited information from the Company to determine whether
the Company has sufficient contacts with such states to require payment of
sales and use taxes on its PC systems sold to customers in those states. The
Company could be required to pay sales and use taxes, and income and franchise
taxes related to the Company's operations in prior periods, which could have a
material adverse effect on the Company's business and results of operations.
In addition, the Company may be increasing its contacts and presence in
various states as it pursues its business strategies. As a result of its
contacts, the Company may be required to collect and remit sales and use taxes
in the future, which could have a material adverse effect on the Company's
business and results of operations.

RELIANCE ON THE DIRECT SALES APPROACH

The Company primarily markets its PC systems directly to individuals, small
and medium-sized businesses and governmental and educational entities through
advertisements in PC trade publications, direct-mail campaigns and on the
Internet. Direct sales orders are received primarily by telephone by the
Company's sales representatives who review configuration options and pricing
with the customer. The direct sales approach may make it difficult for the
Company to penetrate specific markets and may be less appealing to first-time
PC buyers than other sales channels. In addition, the Company's ability to
increase future sales of PC systems is dependent in part on the growth of the
direct sales channel. The Company believes that to retain customer interest in
its PC systems and brand name recognition of its products, the Company must
continue to offer products, services and support which are recognized by trade
publications for overall performance, price, reliability and quality. There
can be no assurance that the Company's name recognition and market acceptance
of its PC products will not decline in the future, which could have a material
adverse effect on the Company's business and results of operations. There can
be no assurance that direct sales of PC

S-12
<PAGE>

systems as a percentage of industry-wide PC sales will increase or that the
Company will increase its share of the direct sales market in the future.
There can also be no assurance that PC companies that currently distribute
their PC products primarily through distributors and resellers will not
implement or devote additional resources to a direct sales strategy, or that
the direct sales strategy will be successful in international markets. Any
decline in the rate of growth of the PC direct sales channel, or the Company's
failure to compete successfully in the direct sales channel, could have a
material adverse effect on the Company's business and result of operations.

INVESTMENT IN CUSTOMER SERVICE AND TECHNICAL SUPPORT SYSTEMS

The Company's PC operation has experienced significant growth in orders for
PC systems. The Company has from time to time experienced an increase in the
volume of customer service and technical support calls, which has placed, and
is expected to continue to place, a strain on the Company's customer service
and technical support systems. To remain competitive, the Company must invest
significant resources in the maintenance and improvement of its customer
service and technical support systems. Any failure to maintain adequate
customer service and technical support systems could cause customer
dissatisfaction with the Company. Customer dissatisfaction could result in
reduced sales of PC systems, which could have a material adverse effect on the
Company's business and results of operations.

GOVERNMENT REGULATION OF THE PC INDUSTRY

Prior to marketing its PC systems, the Company must receive certification
that such systems meet standards established by the Federal Communications
Commission and certain foreign agencies for radio frequency emissions. Any
delay or failure by the Company to obtain such certifications may delay or
prevent the Company from introducing new products on a timely basis, which
could have a material adverse effect on the Company's business and results of
operations. In addition, the U.S. Federal Trade Commission and the Department
of Commerce, along with similar foreign agencies in other jurisdictions, have
promulgated certain regulations that affect the Company's shipping,
advertising and general operations. Any failure by the Company to comply with
such regulations could result in significant penalties, fines or marketing
restrictions, which in turn could have a material adverse effect on the
Company's business and results of operations.

CONTRACT MANUFACTURING

COMPETITION IN THE CONTRACT MANUFACTURING INDUSTRY

The contract manufacturing industry is highly competitive. The Company's
contract manufacturing operation competes against numerous domestic and
offshore contract manufacturers, including a significant number of local and
regional companies. In addition, the Company competes against in-house
manufacturing capabilities of certain of its existing customers as well as
with certain large computer manufacturers which offer third-party contract
manufacturing services. The Company's contract manufacturing competitors
include, among others, Avex Electronics, Inc., Benchmark Electronics, Inc.,
Celestica Inc., DOVAtron International, Inc., Flextronics International, Group
Technologies Corporation, Jabil Circuits, Inc., Sanmina Corporation, SCI
Systems, Inc. and Solectron Corporation. Many of the Company's competitors
have substantially greater manufacturing, technical, financial, personnel,
marketing and other resources than the Company and have manufacturing
operations at multiple domestic and overseas locations.

The Company believes that the significant competitive factors in the
contract manufacturing industry include service, quality, price, technology,
location and the ability to offer flexible delivery schedules and deliver
finished products on an expeditious and timely basis in accordance with
customers' expectations. The Company may be at a disadvantage as to certain
competitive factors when compared to manufacturers with greater resources than
the Company, substantial offshore

S-13
<PAGE>

facilities or substantially larger domestic facilities. There can be no
assurance that the Company's contract manufacturing operation will compete
successfully in the future with regard to these factors. In order to remain
competitive, the Company may be required to expand its contract manufacturing
capacity and may be required to establish additional international operations.
There can be no assurance that the Company will be successful in expanding its
contract manufacturing operation on a timely and efficient basis, or at all.
The failure to do so could have a material adverse effect on the Company's
business and results of operations.

FLUCTUATIONS IN OEM ORDERS

The Company's contract manufacturing customers generally require short
delivery cycles and quick turnaround for contract manufacturing services. As
the Company's OEM customers react to variations in demand for their products
and adjust their purchase orders to the Company, the Company may be subject to
non-cancelable purchase orders with its suppliers and may recognize losses on
write downs of inventories due primarily to the specialized nature of certain
custom components and declines in market pricing of components. Changes in OEM
orders have had an adverse effect on the Company's contract manufacturing
operation in the past and there can be no assurance that the Company will not
experience such adverse effects in the future.

CUSTOMER CONCENTRATION

The Company's sales to its five largest contract manufacturing customers
accounted for approximately 66%, 69% and 58% of revenues from the Company's
contract manufacturing operation in the first quarter of fiscal 1997 and in
1996 and 1995, respectively. Revenue from the Company's largest contract
manufacturing customer represented approximately 22% and 36% of total revenue
from the Company's contract manufacturing operation in the first quarter of
fiscal 1997 and in 1996, respectively. This compares to approximately 33% and
20% of revenue from the Company's largest contract manufacturing customer in
the first quarter of fiscal 1996 and in 1995, respectively. Contract
manufacturing revenue from MTI was approximately 6% and 8% of total contract
manufacturing revenue in the first quarter of fiscal 1997 and in 1996,
respectively, compared to approximately 12% in the first quarter of fiscal
1996 and 13% in 1995. The Company expects to continue to experience a high
degree of contract manufacturing customer concentration.

The Company has no long-term agreements with any of its contract
manufacturing customers which require such customers to purchase contract
manufacturing services from the Company. In recent periods, direct and
indirect sales to the Company's largest contract manufacturing customer have
declined materially, and the Company believes that its key contract
manufacturing customers will from time to time materially reduce their
purchases of the Company's contract manufacturing services in the future.
Although the Company has in the past been able to replace such business with
increased business from new or existing customers, there can be no assurance
that the Company will obtain sufficient alternative business on a timely
basis, and the failure to obtain such business could have a material adverse
effect on the Company's business and results of operations.

ENVIRONMENTAL REGULATION

The Company's contract manufacturing operation is subject to a variety of
environmental regulations relating to the use, storage, discharge and disposal
of hazardous chemicals and waste water used during its manufacturing
processes. Any failure by the Company to comply with present and future
environmental regulations could subject it to liabilities or the suspension of
production. In addition, such regulations could limit the ability of the
Company's contract manufacturing operation to expand its facilities or could
require the Company to acquire costly equipment or incur other significant
costs any of which could have a material adverse effect on the Company's
business and results of operations.

S-14
<PAGE>

SPECTEK MEMORY PRODUCTS OPERATION

DEPENDENCE ON COMPONENT RECOVERY AGREEMENT WITH MTI

Historically, a substantial majority of the nonstandard random access memory
("RAM") components used in the Company's SpecTek memory products operation has
been obtained from MTI. The Company and MTI are parties to a Component
Recovery Agreement, effective as of August 30, 1996 (the "Component Recovery
Agreement"), under which MTI is required to deliver to the Company all of the
nonstandard RAM components produced at MTI's semiconductor manufacturing
operations. The Company's cost of nonstandard components generally will be
determined as one-half of the operating income generated from sales of reduced
specification RAM products supplied by MTI. See "Certain Relationships with
Micron Technology, Inc.--Supply of Nonstandard and Full Specification RAM
Components." There can be no assurance that MTI will continue to produce
adequate volumes of nonstandard RAM components to maintain the Company's
SpecTek memory products operation at existing or historic levels. The
Component Recovery Agreement, which expires August 14, 1999, may be terminated
by MTI in the event that MTI's ownership of the Company falls below 30%.
Termination or renegotiation of the key terms of the Component Recovery
Agreement could have a material adverse effect on the Company's business and
results of operations. Changes in MTI's semiconductor manufacturing processes
resulting in improvement of device yields and/or changes in the product mix or
specifications of its memory components, or other changes or events at MTI
adversely affecting its overall manufacturing output, could adversely affect
the volume of nonstandard RAM components supplied by MTI.

Many semiconductor memory manufacturers are reluctant to sell nonstandard
RAM components because such components could compete with their full
specification RAM components for similar applications. In addition, some
manufacturers are concerned that subsequent testing performed by a recovery
operation could reveal proprietary data regarding manufacturing yields and
processes. As a result, there can be no assurance that the Company will be
able to obtain nonstandard RAM components from semiconductor manufacturers in
quantities sufficient to meet demand for the Company's products. Any reduction
in the availability or functionality of nonstandard RAM components from the
Company's suppliers could have a material adverse effect on the Company's
business and results of operations.

PRICING OF RAM PRODUCTS

Pricing for the Company's reduced specification RAM products fluctuates, to
a large degree, based on industry-wide pricing for semiconductor memory
products. During the last four fiscal quarters, the Company experienced
significant declines in the average selling prices of its reduced
specification RAM products as industry-wide average selling prices for full
specification semiconductor memory products experienced a sharp decline. The
Company believes that such decline in average selling prices of semiconductor
memory products was due primarily to changes in the balance of supply and
demand for these commodity products, and the Company is unable to predict the
impact of semiconductor memory product market dynamics in future periods. Due
to increased market risk associated with holding purchased memory components
in inventory, the Company has experienced in the past, and may experience in
the future, losses from write downs of memory component inventories in periods
of declining prices. Further declines in industry-wide pricing for
semiconductor memory products would likely result in declines in average
selling prices of the Company's reduced specification RAM products, which
could have a material adverse effect on the Company's business and results of
operations.

S-15
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the shares
in this offering are estimated to be approximately $ million (after
deducting estimated expenses and underwriting discounts and commissions). The
Company intends to use such net proceeds for general corporate purposes,
including capital expenditures and to meet working capital needs. In addition,
the Company from time to time considers acquisitions of complementary
businesses, assets or technologies, and although there are no current
agreements or understandings with respect to any such acquisitions, and the
Company is not currently negotiating any potential acquisition, the Company
desires to be able to respond to opportunities as they arise. Pending such
uses, the Company will invest the net proceeds in interest-bearing securities.

The Company will not receive any proceeds from the sale of the shares by the
Selling Shareholders in this offering.

CAPITALIZATION

The following table sets forth the capitalization of the Company at November
28, 1996 and as adjusted to give effect to the application of the net proceeds
from the sale by the Company of the shares offered hereby (after deducting
estimated expenses and underwriting discounts and commissions). The financial
data at November 28, 1996 in the following table should be read in conjunction
with the unaudited financial statements of the Company included herein.

<TABLE>
<CAPTION>
NOVEMBER 28, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current debt...................... $ 21,085 $
-------- --------
Shareholders' equity:
Common Stock, $0.01 par value, 150,000,000 shares
authorized, 92.5 million shares issued and outstanding
actual; 95.5 million shares issued and outstanding as
adjusted(1)............................................ 925
Additional capital...................................... 69,441
Retained earnings....................................... 182,906
Cumulative foreign currency translation adjustment...... (4)
-------- --------
Total shareholders' equity............................. 253,268
-------- --------
Total capitalization.................................. $274,353 $
======== ========
</TABLE>
- --------
(1) Outstanding Common Stock does not include (i) options outstanding as of
November 28, 1996 to purchase approximately 1,914,000 shares of Common
Stock granted pursuant to the 1995 Option Plan at exercise prices ranging
from $8.89 to $23.83 per share, (ii) approximately 3,086,000 additional
shares of Common Stock reserved for future issuance pursuant to the 1995
Option Plan, (iii) options outstanding as of November 28, 1996 to purchase
approximately 43,000 shares of Common Stock granted pursuant to ZEOS'
stock option plan at exercise prices ranging from $2.63 to $10.75 per
share and (iv) approximately 2,364,000 shares reserved for future issuance
pursuant to the Purchase Plan.

S-16
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock trades on the Nasdaq National Market under the
symbol "MUEI." On April 7, 1995, MCI and MCMS, then subsidiaries of MTI,
merged with and into ZEOS, and the surviving corporation's name was changed to
"Micron Electronics, Inc." Prior to April 7, 1995, the Company's Common Stock
traded under the symbol "ZEOS." The following table shows, for the periods
indicated, the high and low sales prices for the Common Stock of the Company,
as reported by the Nasdaq National Market:

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1995
First quarter............................................. $ 8.125 $ 2.750
Second quarter............................................ 11.750 6.750
Third quarter............................................. 16.250 9.625
Fourth quarter............................................ 20.125 13.750
FISCAL YEAR ENDED AUGUST 29, 1996
First quarter............................................. $29.875 $13.000
Second quarter............................................ 15.250 9.250
Third quarter............................................. 17.125 9.000
Fourth quarter............................................ 16.500 8.750
FISCAL YEAR ENDING AUGUST 28, 1997
First quarter ............................................ $23.500 $12.625
Second quarter (through January 23, 1997)................. 25.000 17.750
</TABLE>

On January 23, 1997, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $22 5/8 per share. As of November
28, 1996, there were approximately 2,100 holders of record of Common Stock.

The Company has never declared or paid cash dividends. Declaration or
payment of cash dividends by the Company to its shareholders is limited by the
terms of the Company's credit agreement dated July 3, 1996.

S-17
<PAGE>

SELECTED FINANCIAL INFORMATION

The selected statement of operations data below for the fiscal years ended
September 1, 1994, August 31, 1995 and August 29, 1996 and the selected
balance sheet data as of August 31, 1995 and August 29, 1996, are derived from
the financial statements of the Company audited by Coopers & Lybrand L.L.P.,
independent accountants, that are included elsewhere herein, and are qualified
by reference to such financial statements. The selected statement of
operations data below for the fiscal quarters ended November 30, 1995 and
November 28, 1996 and the selected balance sheet data as of November 30, 1995
and November 28, 1996 are derived from the unaudited financial statements of
the Company included elsewhere herein. On April 7, 1995, MCI and MCMS, then
subsidiaries of MTI, merged with and into ZEOS, and the surviving
corporation's name was changed to "Micron Electronics, Inc." A new basis of
accounting, based on fair values, was established for the assets and
liabilities of ZEOS. Subsequent to the MEI Merger, the Company's financial
statements reflect the consolidated results of operations, financial position
and cash flows of the Company based on the new basis of accounting for the
assets and liabilities of ZEOS and the historical cost bases for the assets
and liabilities of MCI and MCMS. Prior to the MEI Merger, the financial
statements of the Company include only the combined results of operations,
financial position and cash flows of MCI and MCMS. The selected statement of
operations data for the fiscal years ended September 3, 1992 and September 2,
1993 and the selected balance sheet data as of September 3, 1992, September 2,
1993 and September 1, 1994, are derived from the audited financial statements
of MCI and MCMS that are not included herein, after making appropriate
adjustments for the MEI Merger. Such adjustments include the elimination of
intercompany balances and transactions and adjustments to reflect the
capitalization as a result of the MEI Merger. In the opinion of management of
the Company, the unaudited financial statements from which the selected
summary quarterly financial information has been derived, contain all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial position of the Company and its results of
operations and cash flows as of and for the three month periods ended November
30, 1995 and November 28, 1996. These quarterly historical results are not
necessarily indicative of the results to be expected in any future period and
results for interim periods are not necessarily indicative of results for the
entire fiscal year. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein or
incorporated herein by reference.

<TABLE>
<CAPTION>
FISCAL QUARTER
FISCAL YEAR ENDED ENDED
------------------------------------------------ -----------------
SEPT. 3, SEPT. 2, SEPT. 1, AUG. 31, AUG. 29, NOV. 30, NOV. 28,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $63,692 $162,180 $412,938 $999,999 $1,764,920 $438,578 $421,018
Cost of goods sold...... 54,685 129,845 326,643 816,662 1,503,735 379,866 340,568
------- -------- -------- -------- ---------- -------- --------
Gross margin............ $ 9,007 $ 32,335 $ 86,295 $183,337 $ 261,185 $ 58,712 $ 80,450
Selling, general and ad-
ministrative........... 4,748 10,317 25,883 74,951 152,937 31,387 39,826
Research and develop-
ment................... 543 396 561 1,893 3,050 661 883
Restructuring charge(1). -- -- -- -- 29,200 -- --
------- -------- -------- -------- ---------- -------- --------
Operating income........ $ 3,716 $ 21,622 $ 59,851 $106,493 $ 75,998 $ 26,664 $ 39,741
Interest income (ex-
pense), net............ (281) (28) 546 1,983 3,639 1,028 1,270
------- -------- -------- -------- ---------- -------- --------
Income before income
taxes.................. $ 3,435 $ 21,594 $ 60,397 $108,476 $ 79,637 $ 27,692 $ 41,011
Income tax provision.... 1,266 7,971 23,499 43,390 35,055 11,077 16,199
------- -------- -------- -------- ---------- -------- --------
Net income.............. $ 2,169 $ 13,623 $ 36,898 $ 65,086 $ 44,582 $ 16,615 24,812
======= ======== ======== ======== ========== ======== ========
Earnings per share...... $ 0.03 $ 0.17 $ 0.45 $ 0.74 $ 0.48 $ 0.18 $ 0.27
======= ======== ======== ======== ========== ======== ========
Number of shares used in
per share calculation . 75,900 78,076 81,523 87,422 92,495 92,566 93,002
<CAPTION>
SEPT. 3, SEPT. 2, SEPT. 1, AUG. 31, AUG. 29, NOV. 30, NOV. 28,
1992 1993 1994 1995 1996 1995 1996
-------- -------- -------- -------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $13,998 $ 24,123 $ 45,906 $106,452 $ 121,766 $118,240 $139,803
Total assets............ 36,848 70,289 151,739 382,716 529,933 463,723 562,234
Total debt(2)........... 10,713 9,327 7,845 6,823 21,297 6,424 25,059
Total shareholders' eq-
uity................... 13,195 26,874 68,169 173,663 228,460 191,003 253,268
</TABLE>
- -------
(1) In February 1996, the Company adopted a plan to restructure its PC
manufacturing operations by discontinuing sales of its ZEOS brand PC
systems and closing the related manufacturing operations in Minneapolis,
Minnesota. As a result, the Company recorded a restructuring charge of
$29.5 million in the second quarter of fiscal 1996. The Company reduced
the restructuring charge by $0.3 million in the fourth quarter of fiscal
1996 after concluding that its restructuring activities had been completed
or were adequately provided for in the remaining restructuring accrual.
Restructuring costs of $28.9 million incurred through August 29, 1996
include approximately $14.5 million related to the disposition of
inventory, approximately $11.4 million related to the write off of
goodwill which resulted from the MEI Merger, approximately $1.1 million
related to other asset write downs, approximately $0.6 million related to
personnel costs and approximately $1.3 million related to other exit
costs.

(2) Total debt includes all interest bearing debt of the Company and its
subsidiaries.

S-18
<PAGE>

SELECTED PRO FORMA AND ACTUAL FINANCIAL DATA

The following table sets forth unaudited selected pro forma combined
financial data for fiscal 1994 and fiscal 1995, as well as actual selected
consolidated financial data for fiscal 1996. The pro forma financial data
present the pro forma combined condensed results of operations of ZEOS, MCI
and MCMS as if the MEI Merger had occurred at the beginning of fiscal 1994.

The selected statement of operations data below for the fiscal year ended
August 29, 1996 are derived from the financial statements of the Company
audited by Coopers & Lybrand L.L.P., independent accountants, that are
included elsewhere herein, and are qualified by reference to such financial
statements. The unaudited selected pro forma combined financial data are
provided for illustrative purposes only and are not necessarily indicative of
the combined results of operations that would have been reported had the MEI
Merger occurred at the beginning of fiscal 1994, nor do they represent a
forecast of results of operations for any future periods. Intercompany
balances and transactions have been eliminated in the pro forma presentation.
The unaudited selected pro forma combined financial data should be read in
conjunction with the financial statements and related notes of the Company
which are included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
PRO FORMA PRO FORMA
--------- ----------
SEPT. 1, AUG. 31, AUG. 29,
1994(1) 1995(2) 1996
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net sales...................................... $650,983 $1,193,330 $1,764,920
Cost of goods sold............................. 546,144 983,752 1,503,735
-------- ---------- ----------
Gross margin................................... $104,839 $ 209,578 $ 261,185
Selling, general and administrative............ 62,005 99,524 152,937
Research and development....................... 1,998 2,608 3,050
Restructuring charge(3)........................ -- -- 29,200
-------- ---------- ----------
Operating income............................... $ 40,836 $ 107,446 $ 75,998
Interest income, net........................... 802 2,520 3,639
-------- ---------- ----------
Income before income taxes..................... $ 41,638 $ 109,966 $ 79,637
Income tax provision........................... 18,090 44,651 35,055
-------- ---------- ----------
Net income..................................... $ 23,548 $ 65,315 $ 44,582
======== ========== ==========
Earnings per share............................. $ 0.26 $ 0.70 $ 0.48
======== ========== ==========
Number of shares used in per share calculation. 90,494 92,949 92,495
</TABLE>
- --------
(1) Pro forma adjustments for 1994 include amortization of goodwill of $4.9
million, included in selling, general and administrative expenses, accrual
for product and process technology costs of $2.0 million, included in cost
of goods sold, and the related income tax effects.
(2) Pro forma adjustments for 1995 include amortization of goodwill of $2.9
million, included in selling, general and administrative expenses, accrual
for product and process technology costs of $1.0 million, included in cost
of goods sold, and related income tax effects.
(3) In February 1996, the Company adopted a plan to restructure its PC
manufacturing operations by discontinuing sales of its ZEOS brand PC
systems and closing the related manufacturing operations in Minneapolis,
Minnesota. As a result, the Company recorded a restructuring charge of
$29.2 million in fiscal 1996.

S-19
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion contains trend information and other forward-
looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ materially from the Company's historical
results of operations and those discussed in the forward-looking statements.
Factors that could cause actual results to differ materially include, but are
not limited to, those identified in "Risk Factors" and elsewhere in this
Prospectus Supplement or the accompanying Prospectus, including information
incorporated by reference in the accompanying Prospectus.

OVERVIEW

The Company develops, markets, manufactures, sells and supports a range of
memory-intensive, high performance desktop and notebook personal computer
("PC") systems and network server products under the Micron brand name. The
Company's contract manufacturing operations specialize in the assembly of
custom complex printed circuit boards, memory modules and system level
products. SpecTek, the Company's component recovery operation, recovers,
assembles, tests, grades and markets reduced specification RAM products.

The Company's net income for the first quarter of fiscal 1997 was $24.8
million, or $0.27 per share, on net sales of $421.0 million, compared to net
income of $16.6 million, or $0.18 per share, on net sales of $438.6 million
for the corresponding period in 1996. The Company's net sales in the first
quarter of fiscal 1997 were comprised of approximately $345.9 million from the
sales of PC systems, $51.8 million in contract manufacturing revenue and $23.3
million from sales of semiconductor memory products by SpecTek, the Company's
component recovery operation. Net sales of PC systems increased in the first
quarter of fiscal 1997 compared to the corresponding period in fiscal 1996 as
a result of increased name recognition and market acceptance of the Company's
Micron brand PC systems and continued growth of the direct sales channel.
Lower revenues from the Company's contract manufacturing operation in the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996 were
primarily due to the sharp industry-wide decline in pricing for semiconductor
memory products over the Company's past four fiscal quarters. Net sales of
reduced specification RAM products by the Company's SpecTek memory products
operation were lower in the first quarter of fiscal 1997 compared to the
corresponding period in 1996, primarily due to the sharp decline in pricing
for semiconductor memory products. This effect was partially offset by an
increase in unit sales and megabits shipped of reduced specification RAM
products. The Company's gross margin percentage of 19.1% realized in the first
quarter of fiscal 1997 was higher than the 13.4% realized in the first quarter
of fiscal 1996, primarily due to an increase in gross margin percentage from
sales of PC systems coupled with a higher level of sales of PC systems as a
percent of total sales. The increase in gross margin realized in the Company's
PC operation was principally due to improved component costs, particularly for
RAM products, and increased sales of higher margin notebook systems.

The Company's net income in 1996 was approximately $44.6 million, or $0.48
per share, on net sales of approximately $1,764.9 million. Net sales in 1996
increased primarily as a result of significantly higher sales of PC systems
and higher contract manufacturing revenues, partially offset by lower
component recovery sales. The Company's gross margin percentage declined from
approximately 17.6% (on a pro forma basis) in 1995 to approximately 14.8% in
1996, primarily as a result of a significantly lower gross margin percentage
realized from the Company's SpecTek memory products operation and, to a lesser
extent, a lower gross margin percentage realized from its contract
manufacturing operation. These effects were partially offset by a higher gross
margin percentage realized from sales of PC systems, as well as an increase in
sales of PC systems as a percentage of total net sales. The gross margin
percentage realized on net sales of PC systems increased in 1996

S-20
<PAGE>

primarily as a result of improved component costs, particularly for RAM
products, and generally improved PC inventory management. The Company's gross
margin percentage in the fourth quarter of fiscal 1996 benefitted from an
adjustment of approximately $13.0 million relating to revisions of estimates
for certain contingencies for product and process technology costs. Absent
this adjustment, the Company's gross margin percentage in the fourth quarter
of fiscal 1996 would have been approximately 17.9%. The Company believes that,
as a result of continued pricing pressure on PC systems and a slower rate of
decline of, or an increase in, component costs, particularly for RAM products,
it will be unable to maintain its gross margin percentage at this level in the
foreseeable future.

On April 7, 1995, Micron Computer, Inc. ("MCI") and former Micron Custom
Manufacturing Services, Inc., ("MCMS"), then subsidiaries of Micron
Technology, Inc. ("MTI"), merged with and into ZEOS International, Ltd.
("ZEOS"), and the surviving corporation's name was changed to "Micron
Electronics, Inc." (the "MEI Merger"). A new basis of accounting, based on
fair values, was established for the assets and liabilities of ZEOS.
Subsequent to the MEI Merger, the Company's financial statements reflect the
consolidated results of operations, financial position and cash flows of the
Company based on the new basis of accounting for the assets and liabilities of
ZEOS and the historical cost bases for the assets and liabilities of MCI and
MCMS. Prior to the MEI Merger, the financial statements of the Company include
only the combined results of operations, financial position and cash flows of
MCI and MCMS.

In February 1996, the Company adopted a plan to restructure its PC
manufacturing operations by discontinuing sales of its ZEOS brand PC systems
and closing the related manufacturing operations in Minneapolis, Minnesota. As
a result, the Company recorded a restructuring charge of $29.2 million in
1996. Restructuring costs of approximately $28.9 million incurred through
August 29, 1996 include approximately $14.5 million related to the disposition
of inventory, approximately $11.4 million for the write off of goodwill which
resulted from the MEI Merger, approximately $1.1 million related to other
asset write downs, approximately $0.6 million related to personnel costs and
approximately $1.3 million related to other exit costs.

Certain reclassifications have been made in the following discussion and
analysis to present results of operations on a consistent basis.

S-21
<PAGE>

RESULTS OF OPERATIONS FOR THE QUARTERS ENDED NOVEMBER 30, 1995 AND NOVEMBER
28, 1996

Net income for the first quarter of fiscal 1997 was $24.8 million, or $0.27
per share, on net sales of $421.0 million, compared to net income of $16.6
million, or $0.18 per share, on net sales of $438.6 million for the first
quarter of fiscal 1996 and net income of $26.4 million, or $0.29 per share, on
net sales of $457.4 million for the fourth quarter of fiscal 1996.

NET SALES

The following summarizes the Company's net sales by product line:

<TABLE>
<CAPTION>
FIRST QUARTER
---------------------------------------
1996 1997
------------------- -------------------
AMOUNT % OF SALES AMOUNT % OF SALES
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PC systems.............................. $299,797 68.4% $345,907 82.2%
Contract manufacturing.................. 100,552 22.9 51,757 12.3
SpecTek memory products................. 38,229 8.7 23,354 5.5
-------- ----- -------- -----
Total net sales......................... $438,578 100.0% $421,018 100.0%
======== ===== ======== =====
</TABLE>

Total net sales for the first quarter of fiscal 1997 were slightly lower
compared to the corresponding period in 1996 primarily due to lower revenues
from the Company's contract manufacturing operation and, to a lesser extent,
lower sales of memory products by SpecTek, the Company's component recovery
operation. These decreases were nearly offset by a higher level of sales of PC
systems.

PERSONAL COMPUTER SYSTEMS. Net sales of PC systems increased in the first
quarter of fiscal 1997 compared to the corresponding period in 1996 primarily
as a result of increased name recognition and market acceptance of the
Company's Micron brand PC systems and continued growth of the direct sales
channel. Total unit sales of PC systems were approximately 22% higher in the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996. A
46% increase in unit sales of Micron brand PC systems was made possible
through manufacturing efficiencies gained in the re-design of the Company's PC
manufacturing operation in Nampa, Idaho during 1996. This increase was
partially offset by the effect of the discontinuance of ZEOS brand PC systems
during 1996. The growth in sales of PC systems was partially attributable to a
higher level of sales to governmental entities and an increase in sales of the
Micron TransPort, the Company's modular design multimedia notebook product
introduced in the third quarter of fiscal 1996. There can be no assurance that
the Company's name recognition and market acceptance of its PC products will
not decline in the future and there can be no assurance of the continued
growth of the direct sales channel for PC systems, each of which could have a
material adverse effect on the Company's business and results of operations.
See "Risk Factors--Personal Computer Systems--Reliance on the Direct Sales
Approach."

Sales to federal, state and local governmental entities were approximately
27% of total net sales of PC systems in the first quarter of fiscal 1997
compared to approximately 17% in the corresponding period in 1996. The Company
experienced an increase in sales of PC systems under the U.S. Government's
General Services Administration Vendor program and through other direct
government sales in the first quarter of fiscal 1997 compared to the first
quarter of fiscal 1996. In addition, unit sales to prime contractors under
certain federal government procurement programs increased by approximately 12%
in the first quarter of fiscal 1997 compared to the first quarter of fiscal
1996.

S-22
<PAGE>

The level of the Company's governmental sales is partially dependent on the
buying practices of governmental entities and the Company's participation in
government contracts in the future, of which there can be no assurance. The
level of sales of PC systems to governmental entities may vary from quarter to
quarter and a significant decline could have a material adverse effect on the
Company's business and results of operations.

Unit sales of notebook systems were approximately 8% of total PC system
sales during the first quarter of fiscal 1997 compared to approximately 1% in
the corresponding period in 1996. Unit sales of notebook systems in the first
quarter of fiscal 1997 consisted solely of the Micron TransPort, whereas
notebook sales in the first quarter of fiscal 1996 consisted solely of ZEOS
brand product.

Average selling prices for the Company's desktop PC systems decreased in the
first quarter of fiscal 1997 compared to the corresponding period in 1996
primarily as a result of general price reductions and the effect of the higher
level of comparatively lower priced desktop systems sold to governmental
entities as a percentage of total desktop systems sold. Average selling prices
for notebook systems increased over the same period with the Company's
transition from the lower priced ZEOS Meridian notebooks to the higher end
Micron TransPort notebooks.

In the second quarter of fiscal 1996, the Company decided to discontinue the
manufacture and sale of ZEOS brand PC systems and to close the related
manufacturing operation in Minneapolis, Minnesota. As a percentage of total PC
system sales, ZEOS brand PC system sales were approximately 19% in the first
quarter of fiscal 1996.

Net sales of PC systems in the first quarter of fiscal 1997 were slightly
lower compared to the fourth quarter of fiscal 1996 and were adversely
affected by shortages of Pentium Pro microprocessors and certain high-
performance disk drives. Despite a 58% increase in unit sales of Pentium Pro
microprocessor-based PC systems and a 3% overall increase in unit sales in the
first quarter of fiscal 1997 compared to the fourth quarter of fiscal 1996,
the Company was unable to meet the demand for its products containing Pentium
Pro microprocessors and certain high-performance disk drives due to these
shortages. A lower level of PC shipments than expected in the first quarter of
fiscal 1997, principally as a result of these component shortages, led to an
increase of the Company's inventories of other components. In the event that
the Company is unable to obtain Pentium Pro microprocessors or other critical
components in quantities sufficient to meet demand for the Company's PC
systems containing such processors, or obtain such components at competitive
prices, sales of the Company's PC systems would be limited, which, in turn,
could result in further adverse effects on the Company's business and results
of operations. See "Risk Factors--Personal Computer Systems--Dependence on Key
Sources of Supply." To a lesser extent, sales during the first quarter of
fiscal 1997 were adversely affected by extended quality testing performed on
certain desktop PC systems which resulted in a further increase of PC system
inventories at November 28, 1996.

CONTRACT MANUFACTURING. Revenues from the Company's contract manufacturing
operation were approximately 49% lower in the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996 primarily due to the effect of
the sharp industry-wide decline in pricing for semiconductor memory products
over the Company's last four fiscal quarters and, to a lesser extent, a shift
in product mix to lower priced products. Historically, a significant portion
of contract manufacturing revenues have been attributable to the semiconductor
content of products manufactured. Such effects were partially offset by a
higher production volume achieved through the acquisition and utilization of
additional manufacturing equipment and the upgrade of existing equipment at
the Company's Idaho and North Carolina facilities. Contract manufacturing
revenues were 34% lower in the first quarter of fiscal 1997 compared to the
fourth quarter of fiscal 1996 primarily due to the decline in selling prices
for semiconductor memory products, a shift in product mix to lower priced
products and a generally lower production volume from its facilities.
Production volume in the first quarter of fiscal 1997 was adversely

S-23
<PAGE>

affected by the relocation of the Boise, Idaho contract manufacturing
operation to the new site in Nampa, Idaho and the ramp-up of the new
production facility.

The Company continues to rely on a relatively small number of customers for
a significant portion of its contract manufacturing business. As a percent of
total contract manufacturing revenue, revenues from the Company's top five
contract manufacturing customers were approximately 66% in the first quarter
of fiscal 1997, compared to approximately 75% in the first quarter of fiscal
1996. Revenues from the Company's largest contract manufacturing customer
represented approximately 22% of total revenues from the Company's contract
manufacturing operation in the first quarter of fiscal 1997, compared to 33%
of revenue from the Company's largest contract manufacturing customer in the
first quarter of fiscal 1996. Contract manufacturing revenues from MTI were
approximately 6% and 12% of total contract manufacturing revenues in the first
quarter of fiscal 1997 and 1996, respectively. See "Risk Factors--Contract
Manufacturing--Customer Concentration."

SPECTEK MEMORY PRODUCTS. Net sales of reduced specification RAM products by
SpecTek, the Company's component recovery operation, were approximately 39%
lower in the first quarter of fiscal 1997 compared to the first quarter of
fiscal 1996, primarily due to a sharp industry-wide decline in pricing for
semiconductor memory products over the Company's last four fiscal quarters.
These effects were partially offset by an increase in unit sales and megabits
shipped of memory products over the same period. Increased unit sales and
shipments were made possible by the acquisition and utilization of additional
test equipment, reduced component test times and a shift in product mix to
generally higher memory density components. The Company's SpecTek memory
products operation is influenced by a number of factors including pricing for,
and availability of, nonstandard RAM components. See "Risk Factors--SpecTek
Memory Products Operation."

The Company's sales of SpecTek memory products increased by $4.0 million or
21% in the first quarter of fiscal 1997 compared to the fourth quarter of
fiscal 1996 due primarily to a 63% increase in megabits shipped, partially
offset by a continued decline in average selling prices for the Company's
reduced specification RAM products. The higher volume was achieved through
utilization of additional testing equipment acquired during the fourth quarter
of fiscal 1996 and the first quarter of fiscal 1997 and through reduced
component test times.

Historically, a substantial majority of the nonstandard RAM components used
in the Company's SpecTek memory products operation has been obtained from MTI.
In the first quarter of fiscal 1997, the Company obtained approximately 71% of
its nonstandard RAM components from MTI, compared to approximately 64% in the
corresponding period in 1996, with a substantial majority of the remainder
purchased from a single third-party alternative source. Purchases from
alternative sources are generally negotiated on a purchase order basis and
there can be no assurance the Company will be able to negotiate future
purchases from alternative sources on terms acceptable to the Company. Unless
the Company is able to obtain significant quantities of nonstandard RAM
components from alternative sources, the Company's SpecTek memory products
operation could be limited to the volume of nonstandard RAM components
supplied by MTI. In addition, changes in MTI's semiconductor manufacturing
processes resulting in improvement of device yields and/or changes in the
product mix or specifications of its memory components, or other changes or
events at MTI adversely affecting its overall manufacturing output, could
adversely affect the volume of nonstandard RAM components supplied by MTI. Any
reduction in the availability or functionality of nonstandard RAM components
from MTI or other suppliers could have a material adverse effect on the
Company's business and results of operations. See "Risk Factors--SpecTek
Memory Products Operation--Dependence on Component Recovery Agreement with
MTI."

S-24
<PAGE>

GROSS MARGIN

<TABLE>
<CAPTION>
FIRST QUARTER
-------------------------------------
1996 1997
------------------ ------------------
AMOUNT % OF SALES AMOUNT % OF SALES
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PC systems................................ $33,281 11.1% $68,030 19.7%
Contract manufacturing.................... 10,017 10.0 6,580 12.7
SpecTek memory products................... 15,414 40.3 5,840 25.0
------- -------
Total gross margin........................ $58,712 13.4% $80,450 19.1%
======= =======
</TABLE>
The Company's overall gross margin percentage increased to 19.1% in the
first quarter of fiscal 1997 from 13.4% in the first quarter of 1996,
primarily as a result of a higher gross margin percentage realized from the
Company's PC operation coupled with higher PC system sales as a percent of
total sales. This increase was partially offset by lower gross margins
realized from sales of memory products by the Company's SpecTek memory
products operation. The Company's overall gross margin percentage in the first
quarter of fiscal 1997 was lower than the 20.7% realized in the fourth quarter
of fiscal 1996. In the fourth quarter of fiscal 1996, gross margin benefited
by $13.0 million from revisions of estimates for product and process
technology costs. Absent the revisions of estimates, the Company's gross
margin percentage in the fourth quarter of fiscal 1996 would have been
approximately 17.9%. The increase in the gross margin percentage for the first
quarter of fiscal 1997 compared to the 17.9% was primarily due to higher gross
margin percentages realized from the Company's SpecTek memory products and
contract manufacturing operations and a relatively stable gross margin
percentage realized in the Company's PC operation.

PERSONAL COMPUTER SYSTEMS. The gross margin amount provided by the Company's
PC operation in the first quarter of fiscal 1997 increased approximately 104%
compared to the first quarter of fiscal 1996 principally due to a higher gross
margin percentage realized on PC system sales coupled with a 22% increase in
unit sales of PC systems. The higher gross margin percentage for sales of the
Company's PC systems in the first quarter of fiscal 1997 compared to the
corresponding period in 1996 was primarily due to improved component costs,
particularly for RAM products, and, to a lesser extent, an increase in unit
sales of notebook systems. Due to the sharp industry-wide decline in pricing
for semiconductor memory products, the Company's cost of RAM products
decreased significantly during the Company's past four fiscal quarters.
Improved component costs resulted from declines in costs for RAM and other
components at rates faster than reductions in selling prices for the Company's
PC systems. There can be no assurance that the Company's future cost of
components will decrease at rates comparable to those in recent periods, or at
all, or that the Company's selling prices for its PC systems will not decrease
at a rate faster than the decline in its component costs. In addition,
increased sales of the Company's notebook products favorably affected the
Company's gross margin percentage for sales of PC systems. These systems
generally have experienced higher selling prices and gross margins compared to
the balance of the Company's PC systems. The increase in government sales in
the first quarter of fiscal 1997 compared to the first quarter of fiscal 1996
had an adverse effect on the Company's overall PC gross margin percentage, as
these sales generally have lower gross margin percentages than the balance of
the Company's PC sales. The Company continues to experience significant
pressure on its gross margins as a result of intense competition in the PC
industry and consumer expectations of more powerful PC systems at lower
prices. In addition, the Company's gross margin percentage will continue to
depend in large part on its ability to effectively manage its inventories of
PC system components. See "Risk Factors--Personal Computer Systems--
Competition in the PC Industry" and "Risk Factors--Personal Computer Systems--
Inventory Management."

In September 1996, the Company entered into a license agreement and, through
MTI, became licensed under another agreement, each providing for the use of
certain technology in its PC operation.

S-25
<PAGE>

The costs of intellectual property rights used in the manufacture of the
Company's PC systems as a percent of net sales of PC systems were
approximately 1.4% lower for the first quarter of fiscal 1997 compared to the
first quarter of fiscal 1996. Future charges for intellectual property rights
may fluctuate, however, as a result of resolution of asserted claims of
infringement and claims that may be asserted in the future. In addition, the
Company's rights under its license agreement obtained through MTI may
terminate in the event that the Company is no longer a majority-owned
subsidiary of MTI. See "Risk Factors--General--Intellectual Property Matters."

CONTRACT MANUFACTURING. The gross margin percentage realized from the
Company's contract manufacturing operation was higher in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996 primarily due to a
shift in product mix to relatively higher margin products and a significant
increase in production volume resulting in a reduction in process costs per
unit.

SPECTEK MEMORY PRODUCTS. The gross margin percentage realized by the
Company's SpecTek memory products operation declined in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996, primarily due to
significantly lower average selling prices resulting from a sharp industry-
wide decline in pricing for semiconductor memory products over the Company's
past four fiscal quarters. This effect was partially offset by generally lower
costs of nonstandard RAM components obtained under the Component Recovery
Agreement with MTI. Under this agreement, costs of nonstandard RAM components
are generally determined as one-half of the net operating income generated
from sales of reduced specification RAM products obtained from MTI. Prior to
fiscal 1997, costs of nonstandard RAM components obtained from MTI were
generally equal to one-half the price realized from sales of such components.
See "Risk Factors--SpecTek Memory Products Operation--Dependence on Component
Recovery Agreement with MTI."

The gross margin percentage of 25.0% realized by the Company's SpecTek
memory products operation in the first quarter of fiscal 1997 was
significantly higher than the gross margin percentage realized in the fourth
quarter of fiscal 1996, primarily due to lower costs of components obtained
from MTI under the Component Recovery Agreement and, to a lesser extent,
generally lower production costs per unit.

In the event that average selling prices for SpecTek's memory products
continue to decline, the gross margin percentage for the Company's SpecTek
memory products operation could decline further and overall results of
operations could be adversely affected. See "Risk Factors--SpecTek Memory
Products Operation--Pricing of RAM Products." In the event that the Company is
unable to obtain additional sources of supply of nonstandard RAM components or
to maintain its existing sources of supply, the Company's SpecTek memory
products operation's gross margin percentage could decline and overall results
of operations could be adversely affected.

SELLING, GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
FIRST QUARTER
-------------------------
1996 % CHANGE 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Selling, general and administrative.................. $31,387 26.9% $39,826
as a % of net sales.................................. 7.2% 9.5%
</TABLE>

Selling, general and administrative ("SG&A") expenses increased in absolute
dollars and as a percent of net sales in the first quarter of fiscal 1997
compared to the corresponding period in 1996 primarily due to higher levels of
personnel costs associated with the expanded PC operation and increased
advertising for the Company's PC operation. SG&A expenses in the first quarter
of fiscal 1996 included approximately $1.2 million of goodwill amortization,
reflecting charges prior to the write-off of unamortized goodwill in
connection with the Company's restructuring charge relating to the
discontinuance of its ZEOS brand products in the second quarter of fiscal
1996.

S-26
<PAGE>

INCOME TAX PROVISION

<TABLE>
<CAPTION>
FIRST QUARTER
------------------------
1996 % CHANGE 1997
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision................................... $11,077 46.2% $16,199
</TABLE>

The effective income tax rate was 39.5% in the first quarter of fiscal 1997,
principally reflecting the federal statutory rate and the net effect of state
taxes. The Company's effective income tax rate of 40.0% for the corresponding
period in 1996 principally reflected the federal statutory rate, the net
effect of state taxes and the effect of goodwill amortization.

RESULTS OF OPERATIONS FOR 1994, 1995 AND 1996

The Company believes that discussion and analysis of the Company's results
of operations on a pro forma basis for the three year period ending August 29,
1996, which includes the results of operations of ZEOS prior to the MEI
Merger, provide a more meaningful comparison than discussion and analysis of
the Company's actual results of operations. The following discussion and
analysis present the Company's results of operations for 1996, compared to the
Company's pro forma results of operations for 1995 and 1994, as if the MEI
Merger had occurred at the beginning of 1994 and giving effect to pro forma
adjustments, including amortization of goodwill, certain product and process
technology costs and related income tax effects. The pro forma information is
provided for illustrative purposes and is not necessarily indicative of the
results of operations that would have occurred if MCI and MCMS had merged with
ZEOS at the beginning of fiscal 1994, nor does it represent a forecast of
results of operations for any future period.

NET SALES

The following table summarizes the Company's net sales by product line:

<TABLE>
<CAPTION>
PRO FORMA 1994 PRO FORMA 1995 1996
------------------- --------------------- ---------------------
AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES
-------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PC systems.............. $366,640 56.3% $ 765,009 64.1% $1,252,492 71.0%
Contract manufacturing.. 117,278 18.0 188,145 15.8 373,622 21.2
SpecTek memory products. 167,065 25.7 240,176 20.1 138,806 7.8
-------- ----- ---------- ----- ---------- -----
Total net sales......... $650,983 100.0% $1,193,330 100.0% $1,764,920 100.0%
======== ===== ========== ===== ========== =====
</TABLE>

Net sales for 1996 were approximately 48% higher than in 1995, primarily due
to a significant increase in sales of PC systems and higher revenues from the
Company's contract manufacturing operation, partially offset by lower sales
from the Company's SpecTek memory products operation. Net sales for 1995 were
approximately 83% higher than in 1994, due to a significant increase in sales
of PC systems and, to a lesser extent, higher revenues from the Company's
SpecTek memory products operation and contract manufacturing operation.

PERSONAL COMPUTER SYSTEMS. Net sales of PC systems were significantly higher
in 1996 compared to 1995 primarily due to significantly higher unit sales of
PC systems and, to a lesser extent, higher average selling prices for such PC
systems. Unit sales of PC systems in 1996 were approximately 60% higher
compared to 1995 principally due to an increase in sales through the direct
channel resulting from increased name recognition and market acceptance of the
Company's Micron brand desktop PC systems and continued growth in the direct
sales channel. Increased sales to governmental entities and increased sales of
notebook systems also contributed to higher overall unit sales. Increased name
recognition and market acceptance of the Company's Micron brand PC systems
partially resulted from the receipt by the Company of a number of awards from
trade

S-27
<PAGE>

publications recognizing the price and performance characteristics of Micron
brand PC systems and the Company's service and support functions. There can be
no assurance that the Company's name recognition and the market acceptance of
its PC products will not decline in the future, which could have a material
adverse effect on the Company's business and results of operations. See "Risk
Factors--Personal Computer Systems--Reliance on the Direct Sales Approach."

Sales to federal, state and local governmental entities increased as a
percentage of total net sales of PC systems in 1996 to approximately 16.3%
compared to 5.6% in 1995 and 5.7% in 1994. During 1996, the Company recorded
sales of approximately $74.8 million pursuant to two subcontract agreements
with prime contractors of the federal government under the PC-1 and Desktop V
contracts. The Company substantially discontinued shipments under the PC-1
contract in the second quarter of fiscal 1996 and expects that it will make no
future shipments pursuant to the PC-1 contract. The balance of governmental
sales in 1996 and those in 1995 and 1994 were generally under the U.S.
Government's General Services Administration Vendor program and through other
direct sales. The level of the Company's governmental sales is partially
dependent on the buying practices of governmental entities and the Company's
success in being selected to participate in government contracts in the
future, of which there can be no assurance. A significant decline in sales of
PC systems pursuant to government contracts could have a material adverse
effect on the Company's business and results of operations.

Sales of notebook systems represented approximately 8.1% of total PC system
sales during 1996 compared to approximately 2.5% in 1995 and 5.5% in 1994. The
Company experienced an increase in sales of its notebook products in 1996 as a
result of the introduction in the third quarter of fiscal 1996 of the
TransPort, the Company's modular design multimedia notebook product. The
decline of notebook sales as a percent of total PC system sales in 1995
compared to 1994 was primarily due to the significant increase in desktop PC
systems sold in 1995.

Average selling prices for the Company's PC systems increased in 1996
compared to 1995 primarily as a result of the completion of the transition in
product mix toward relatively higher priced Pentium and Pentium Pro
microprocessor based systems and customer preferences for more richly
configured PC systems with components featuring the latest developments in PC-
related technology. In addition, during 1996, the Company experienced higher
unit sales of notebook products, which generally have significantly higher
average selling prices compared to the Company's overall average selling price
for PC systems. The Company's average selling price for PC systems declined
approximately 6% in the fourth quarter of fiscal 1996 compared to the third
quarter of fiscal 1996, primarily as a result of general price reductions for
desktop systems and an increase in volume of lower priced PC systems sold
under the Desktop V contract.

In the second quarter of fiscal 1996, the Company decided to discontinue the
manufacture and sale of ZEOS brand PC systems and to close the related
manufacturing operations in Minneapolis, Minnesota. As a percentage of total
PC system sales, sales of ZEOS brand PC systems represented approximately 7.0%
in 1996 compared to 38.5% in 1995 and 65.8% in 1994.

Sales of PC systems in 1995 increased approximately 109% compared to 1994.
In 1995 and 1994, sales of desktop systems constituted approximately 97.5% and
94.5%, respectively, of total PC system sales. The increase in sales of
desktop PC systems in 1995 was due to a significant increase in sales of
Micron brand PC systems resulting from an increase in name recognition and
market acceptance. Slightly higher overall average selling prices of PC
systems in 1995 compared to 1994 resulted principally from a shift, beginning
in the fourth quarter of fiscal 1994, within the desktop PC product lines from
Intel486 microprocessor based systems to relatively higher priced Pentium
microprocessor based systems. The effect of this shift in product mix was
offset in part by continued competitive pricing pressure.

S-28
<PAGE>

CONTRACT MANUFACTURING. Revenues from the Company's contract manufacturing
operations were approximately 99% higher in 1996 than in 1995; however,
quarterly revenues declined sequentially in 1996 from the second quarter
through the fourth quarter. The increase in 1996 revenue compared to 1995 was
primarily due to the utilization of increased manufacturing capacity and a
higher percentage of turnkey, as opposed to consignment, memory module
assembly services. Increased capacity was obtained through the acquisition and
utilization of additional manufacturing equipment and the upgrade of existing
manufacturing equipment at the Company's Boise, Idaho and Durham, North
Carolina facilities. Contract manufacturing revenues in the last three
quarters of fiscal 1996 were adversely impacted by an industry-wide decline in
pricing for semiconductor memory products.

Contract manufacturing revenues were higher in 1995 compared to 1994,
primarily due to increased manufacturing capacity obtained through the
addition of a new surface mount technology ("SMT") line at the Company's Boise
facility and the upgrade of the Company's existing production lines.
Additionally, two SMT lines were installed at the Company's Durham, North
Carolina facility which became fully operational in June 1995.

The Company continues to rely on a relatively small number of customers for
a significant portion of its contract manufacturing business. As a percent of
total contract manufacturing revenue for 1996, revenues from the Company's top
five contract manufacturing customers, including MTI, were approximately 69%,
compared to approximately 58% and 63%, in 1995 and 1994, respectively.
Revenues, directly or indirectly, from one customer represented approximately
36% of the revenues of the Company's contract manufacturing operations in
1996. Contract manufacturing revenue from MTI was approximately 8%, 13% and
14% of total contract manufacturing revenue in 1996, 1995 and 1994,
respectively. The decrease in contract manufacturing revenues from MTI as a
percentage of total contract manufacturing revenues was principally due to a
reduction in the volume of memory module assembly services provided for MTI.
See "Risk Factors--Contract Manufacturing--Customer Concentration."

SPECTEK MEMORY PRODUCTS. Net sales of reduced specification memory products
by SpecTek, the Company's component recovery operation, were approximately 42%
lower in 1996 compared to 1995, primarily due to a significant decline in
sales of peripheral add-on memory modules, a significant decline in average
selling prices for RAM products and a generally lower grade of nonstandard RAM
components received from MTI, the Company's primary supplier. These effects
were partially offset by an increase in unit sales of reduced specification
RAM products. Sales of peripheral add-on memory modules represented
approximately 47% of total sales from the Company's SpecTek memory products
operation for 1996 compared to approximately 76% for 1995 and 84% in 1994, as
the Company changed the focus of its internal production and engineering
resources in 1996 primarily to capacity expansion and product development of
reduced specification RAM products. The increase in unit sales of reduced
specification RAM products in 1996 compared to 1995 was primarily due to the
acquisition and utilization of additional test and burn-in equipment and
reduced component test times, both resulting in increased throughput for
substantially all reduced specification RAM products. The results of
operations from the Company's SpecTek memory products operation are influenced
by a number of factors including pricing for, and availability of, nonstandard
RAM components. See "Risk Factors--SpecTek Memory Products Operation."

Net sales of SpecTek memory products were higher in 1995 compared to 1994 as
a result of increases in both unit sales and overall average selling prices.
Unit sales increased approximately 62% in 1995, primarily due to increased
availability of nonstandard RAM components and increased production capacity
resulting primarily from the addition of new test and burn-in equipment.
Overall average selling prices increased approximately 50% in 1995, primarily
due to a shift in the product mix to higher priced, higher density reduced
specification RAM components.

Unit sales of peripheral add-on memory products declined slightly in 1995
compared to 1994, but the average memory density per module increased
approximately 56%. Overall average selling prices

S-29
<PAGE>

of peripheral add-on memory products increased approximately 75% in 1995
compared to 1994, due largely to the increase in the average memory density
per module.

Historically, a substantial majority of the nonstandard RAM components used
in the Company's SpecTek memory products operation has been obtained from MTI.
In 1996, the Company obtained approximately 61% of its nonstandard RAM
components from MTI, compared to approximately 89% in 1995 and 98% in 1994. In
1996, a substantial majority of the remainder of its nonstandard RAM
components was purchased from a single third-party alternative source.
Purchases from this alternative source are generally negotiated on a purchase
order basis. There can be no assurance that the Company will be able to
negotiate future purchases from this alternative source on terms acceptable to
the Company. Unless the Company is able to continue obtaining significant
quantities of nonstandard RAM components from alternative sources, the
Company's SpecTek memory products operation could be limited by the volume of
nonstandard RAM components supplied by MTI. Changes in MTI's semiconductor
manufacturing processes resulting in improvement of device yields and/or
changes in the RAM product mix and specifications, or other changes or events
at MTI adversely affecting its overall manufacturing output, could adversely
affect the volume of nonstandard RAM components supplied by MTI. Any reduction
in the availability or functionality of nonstandard RAM components from the
Company's suppliers could have a material adverse effect on the Company's
business and results of operations. See "Risk Factors--SpecTek Memory Products
Operation--Dependence on Component Recovery Agreement with MTI."

GROSS MARGIN

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1994 % CHANGE 1995 % CHANGE 1996
--------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross margin.................... $104,839 99.9% $209,578 24.6% $261,185
as a % of net sales............. 16.1% 17.6% 14.8%
</TABLE>

The Company's overall gross margin percentage declined to approximately
14.8% in 1996 from 17.6% in 1995. The decrease in gross margin percentage in
1996 compared to 1995 was primarily a result of a significantly lower gross
margin percentage realized from the Company's SpecTek memory products
operation and, to a lesser extent, a lower gross margin percentage realized
from the Company's contract manufacturing operations. These effects were
partially offset by a higher gross margin percentage realized from the
Company's PC operations.

The Company's overall gross margin percentage was higher in 1995 compared to
1994 principally due to the adjustment in 1994 of approximately $5.7 million
relating to the write down of certain ZEOS brand PC inventories. Absent the
effect of this adjustment, the Company's gross margin percentage increased
slightly in 1995 compared to 1994, reflecting the favorable effect of a higher
gross margin percentage realized in the Company's SpecTek memory products
operation, offset in part by an increase in sales of PC systems as a
percentage of total net sales.

PERSONAL COMPUTER SYSTEMS. The gross margin amount provided by the Company's
PC operations in 1996 increased approximately 120% compared to 1995
principally due to the higher level of net sales of PC systems and a generally
higher gross margin percentage realized on such sales. The gross margin
percentage for sales of the Company's PC systems increased in 1996 compared to
1995 primarily as a result of improved component costs, particularly for RAM
products, and generally improved inventory management. The Company's cost of
RAM products, which represents a significant portion of total PC component
costs, decreased significantly during the last three quarters of fiscal 1996.
There can be no assurance that the Company's future cost of components will
decrease at rates comparable to those in recent periods, or at all, or that
the Company's selling prices for its PC systems will not decrease at a rate
faster than the decline in its component costs. In addition, increased sales
of the Company's notebook products favorably affected the Company's gross
margin

S-30
<PAGE>

percentage for sales of PC systems. These systems generally have had higher
selling prices and gross margins compared to the balance of the Company's PC
systems. The Company continues to experience significant pressure on its gross
margins as a result of intense competition in the PC industry and consumer
expectations of more powerful PC systems at lower prices. In addition, the
Company's gross margin percentage will continue to depend in large part on its
ability to effectively manage its inventories of PC system components. See
"Risk Factors--Personal Computer Systems--Competition in the PC Industry" and
"--Inventory Management."

The Company's gross margin from sales of PC systems in the fourth quarter of
fiscal 1996 was favorably affected by an adjustment relating to revisions of
estimates for certain contingencies for product and process technology costs.
In September 1996, the Company entered into a license agreement and, through
MTI, became licensed under another agreement, each providing for the use of
certain technology in its PC operations. As a result, the Company believes
that its charges for product and process technology in future periods as a
percent of net sales of PC systems will approximate the rate experienced in
fiscal 1996 after giving effect to the fourth quarter adjustments. Future
charges for product and process technology may fluctuate, however, as a result
of resolution of asserted claims of infringement and claims that may be
asserted in the future. In addition, the Company's rights under the license
agreement through MTI may terminate in the event that the Company is no longer
a majority-owned subsidiary of MTI. See "Risk Factors--General--Intellectual
Property Matters" and "Certain Relationships with Micron Technology, Inc.--
Licensing."

The increase in government sales in 1996, in particular those under federal
government procurement contracts, adversely affected the Company's overall PC
gross margin percentage, as these sales generally have lower gross margin
percentages than the balance of the Company's PC sales.

The gross margin on sales of PC systems in 1995 remained relatively stable
compared to 1994. The Company's gross margin percentage realized on sales of
PC systems in 1995 was adversely affected by continued intense pressure on
pricing for PC products. The Company's gross margin percentage realized on
sales of PC systems in 1994 was negatively affected by the write down of
certain ZEOS brand PC systems and components.

CONTRACT MANUFACTURING. The gross margin percentage realized from the
Company's contract manufacturing operations decreased in 1996 compared to
1995, due primarily to an increase in the percentage of total revenues derived
from the Company's turnkey memory module assembly services. Such assembly
services generally have a lower gross margin percentage than the balance of
the Company's contract manufacturing services.

SPECTEK MEMORY PRODUCTS. The gross margin percentage realized by the Company
from its SpecTek memory products operation declined significantly in 1996
compared to 1995, primarily due to significantly lower average selling prices
resulting from a sharp industry-wide decline in market prices for
semiconductor memory products. Gross margins were also adversely affected by
the increased purchases by the Company of nonstandard RAM components from
third-party suppliers relative to the amount of nonstandard RAM components
obtained from MTI under the Revenue Sharing Agreement. Under the Revenue
Sharing Agreement, the Company's costs of components were generally determined
at the time products were sold and were generally equal to one-half the price
realized from such sales. The Company entered into the Component Recovery
Agreement with MTI, dated as of August 14, 1996 and effective the first day of
fiscal year 1997, which replaces the Revenue Sharing Agreement. Under the
Component Recovery Agreement, the Company's costs of components will be
generally determined as one-half of the net operating income generated from
sales of reduced specification RAM products obtained from MTI. See "Risk
Factors--SpecTek Memory Products Operation--Dependence on Component Recovery
Agreement with MTI" and "Certain Relationships with Micron Technology, Inc.--
Supply of Nonstandard and Full Specification RAM Components."

S-31
<PAGE>

While overall gross margins on sales of SpecTek memory products increased in
1995 over 1994, in the fourth quarter of fiscal 1995, MTI's improved
semiconductor testing processes resulted in the shipment of a reduced amount
of higher functional nonstandard RAM components to the Company for recovery,
thus reducing the Company's average selling prices and gross margins for such
products.

In the event that average selling prices for the Company's reduced
specification RAM products continue to decline, the gross margin percentage
for the Company's SpecTek memory products operation would decline further and
overall results of operations could be adversely affected. See "Risk Factors--
SpecTek Memory Products Operation--Pricing of RAM Products."

SELLING, GENERAL AND ADMINISTRATIVE

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1994 % CHANGE 1995 % CHANGE 1996
--------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative................ $62,005 60.5% $99,524 53.7% $152,937
as a % of net sales............ 9.5% 8.3% 8.7%
</TABLE>

Selling, general and administrative ("SG&A") expenses increased in absolute
dollars, and as a percent of net sales, in 1996 compared to 1995 primarily due
to higher levels of personnel costs associated with the expanded PC
operations. During the fourth quarter of fiscal 1996, the Company charged
operations with a $9.0 million accrual relating to revisions of estimates for
selling costs associated with sales of PC systems. Pro forma SG&A expenses in
1995 and 1994 included approximately $4.9 million for amortization of
goodwill, as if the MEI Merger had occurred at the beginning of 1994. SG&A
expenses in 1996 included approximately $1.2 million of goodwill amortization,
reflecting charges prior to the write off of unamortized goodwill in
connection with the Company's restructuring charge in the second quarter of
fiscal 1996.

SG&A expenses increased in 1995 compared to 1994, due primarily to higher
levels of personnel costs and, to a lesser extent, increased advertising costs
and credit card processing fees associated with the Company's increased level
of net sales of PC systems. As a percent of net sales, SG&A expenses decreased
in 1995 compared to 1994 due to the relatively higher rate of growth of sales
over the same period.

INCOME TAX PROVISION

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1994 % CHANGE 1995 % CHANGE 1996
--------- -------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income tax provision.............. $18,090 146.8% $44,651 (21.5)% $35,055
</TABLE>

The effective income tax rate was 44.0% in 1996 and 40.6% in 1995,
reflecting the federal statutory rate, the net effect of state taxes, the
effect of goodwill amortization and the write off during the second quarter of
fiscal 1996 of approximately $11.4 million of nondeductible goodwill. Without
giving effect to nondeductible goodwill charges in 1996 totalling
approximately $12.6 million, the Company's effective income tax rate would
have been 38.0%. The Company's effective income tax rate of 40.6% for 1995 was
lower than the effective income tax rate of 43.4% in 1994 due primarily to the
decrease in the effect on pretax income of nondeductible goodwill in 1995.
Both the 1995 and 1994 rates reflect the federal statutory rate, the net
effect of state taxes and the effect of goodwill amortization. As of June
1996, the Company was not consolidated with MTI for federal income tax
purposes. See "Certain Relationships with Micron Technology, Inc.--
Consolidated Tax Returns and Tax Sharing Agreements."

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth selected unaudited statement of operations
data of the Company for the eight fiscal quarters of 1995 and 1996 and the
first quarter of fiscal 1997. Past quarterly operating results are not
necessarily indicative of the results that may be expected for future periods.
The data

S-32
<PAGE>

should be read in conjunction with the financial statements, related notes and
other financial information of the Company included herein.

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
--------- --------- ---------
DEC. 1, MAR. 2, JUNE 1, AUG. 31, NOV. 30, FEB. 29, MAY 30, AUG. 29, NOV. 28,
1994 1995 1995 1995 1995 1996 1996 1996 1996
--------- --------- --------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales(1)............ $205,922 $271,219 $307,909 $403,968 $438,578 $456,619 $412,322 $457,401 $421,018
Cost of goods sold...... 168,101 219,019 252,584 339,930 379,866 407,609 353,751 362,509 340,568
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross margin............ $ 37,821 $ 52,200 $ 55,325 $ 64,038 $ 58,712 $ 49,010 $ 58,571 $ 94,892 $ 80,450
Selling, general and
administrative......... 19,868 23,434 27,598 28,483 31,387 32,637 36,084 52,829 39,826
Research and
development............ 380 586 833 803 661 934 673 782 883
Restructuring charge.... -- -- -- -- -- 29,500 -- (300) --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss). $ 17,573 $ 28,180 $ 26,894 $ 34,752 $ 26,664 $(14,061) $ 21,814 $ 41,581 $ 39,741
Interest income, net.... 405 637 694 784 1,028 645 888 1,078 1,270
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................. $ 17,978 $ 28,817 $ 27,588 $ 35,536 $ 27,692 $(13,416) $ 22,702 $ 42,659 $ 41,011
Income tax provision
(benefit).............. 7,300 11,701 11,202 14,579 11,077 (860) 8,627 16,211 16,199
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 10,678 $ 17,116 $ 16,386 $ 20,957 $ 16,615 $(12,556) $ 14,075 $ 26,448 $ 24,812
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
common share........... $ 0.11 $ 0.18 $ 0.18 $ 0.23 $ 0.18 $ (0.14) $ 0.15 $ 0.29 $ 0.27
======== ======== ======== ======== ======== ======== ======== ======== ========
Number of shares used in
per share calculation.. 93,112 93,179 92,805 92,571 92,566 91,507 92,477 92,623 93,002
</TABLE>
- --------
(1) The Company's net sales excluding sales of ZEOS brand PC systems were
$133.3 million, $190.6 million, $231.3 million, $344.0 million, $380.6
million, $432.5 million, $406.5 million, $457.4 million and $421.0 for the
eight fiscal quarters of 1995 and 1996 and the first quarter of fiscal
1997.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Results of Operations for the Quarters Ended November 30, 1995
and November 28, 1996" for a detailed discussion of unaudited statement of
operations data of the Company for the first fiscal quarter of 1997.

With the exception of the third quarter of fiscal 1996 and the first quarter
of fiscal 1997, the Company's net sales increased across all periods presented
primarily as a result of significantly higher levels of sales of Micron brand
PC systems and higher output from the Company's contract manufacturing and
SpecTek memory products operations. In the last three quarters of fiscal 1996,
the higher output from the Company's contract manufacturing and SpecTek memory
products operations was offset by a decline in pricing for semiconductor
memory products.

The higher level of sales of PC systems was primarily attributable to
increasing brand name recognition and market acceptance of the Company's
Micron brand PC systems. Sales of ZEOS brand PC systems declined in the third
quarter of fiscal 1996, primarily as a result of the Company's decision in the
second quarter of fiscal 1996 to discontinue the manufacture and sale of ZEOS
brand PC systems. This decline offset an increase in sales of Micron brand PC
systems during the third quarter of fiscal 1996.

S-33
<PAGE>

Revenues from the Company's contract manufacturing operation increased
sequentially from the first quarter of fiscal 1995 through the second quarter
of fiscal 1996, principally due to utilization of increased manufacturing
capacity resulting from the acquisition of additional manufacturing equipment
and the upgrade of existing manufacturing equipment at the Company's Idaho and
North Carolina facilities. In addition, contract manufacturing revenues in
1996 were favorably affected by a higher percentage of turnkey, as opposed to
consigned, memory module services. Revenues from the Company's contract
manufacturing operation in the last three quarters of fiscal 1996 were
adversely impacted by an industry-wide decline in pricing for semiconductor
memory products.

Net sales of reduced specification RAM products from the Company's SpecTek
memory products operation were adversely impacted in the last three quarters
of fiscal 1996 by the sharp decline in selling prices for semiconductor memory
products.

The Company's gross margin percentage declined from the second quarter of
fiscal 1995 through the second quarter of fiscal 1996, due primarily to the
increasing proportion of total net sales represented by PC sales, which
generally had a lower gross margin percentage than the Company's other
operations during these periods. The Company's gross margin percentage during
the third and fourth quarters of fiscal 1996 increased due primarily to an
increased gross margin percentage in the Company's PC operations combined with
continuing increases in sales of PC systems as a percentage of total net
sales. The Company's overall gross margin percentage was adversely affected by
declines in the gross margin percentage of the contract manufacturing
operations in the third quarter of fiscal 1996 and the SpecTek memory products
operation in the third and fourth quarters of fiscal 1996. In addition, the
gross margin percentage in the fourth quarter of fiscal 1996 benefitted from
an adjustment of approximately $13.0 million relating to revisions of
estimates for certain contingencies for product and process technology costs.
Absent this adjustment, the Company's gross margin percentage in the fourth
quarter of fiscal 1996 would have been approximately 17.9%.

Selling, general and administrative expenses increased across all periods
presented, principally due to higher levels of personnel costs and increased
advertising and credit card fees associated with the expanded PC operations.
In addition, selling, general and administrative expenses in the fourth
quarter of fiscal 1996 included a $9.0 million accrual for revisions of
estimates for selling costs associated with sales of PC systems.

LIQUIDITY AND CAPITAL RESOURCES

As of November 28, 1996, the Company had cash and equivalents of $122.4
million, representing an increase of $6.6 million compared to August 29, 1996.
Principal sources of liquidity in 1997 were cash flows from operations of
$21.7 million and borrowings under equipment financing arrangements of $4.6
million. Cash flow from operations for the first quarter of fiscal 1997 was
adversely affected by an increase in inventories of certain PC system
components. Principal uses of cash in 1997 were property, plant and equipment
expenditures of $18.9 million for expansion and capacity improvements of the
Company's manufacturing operations and repayment of the Company's debt of $0.8
million.

The Company has an unsecured revolving credit facility with MTI which
provides for borrowings of up to $80.0 million, based on the Company's
tangible net worth. As of November 28, 1996, the Company was eligible to
borrow approximately $54.6 million under the facility, but had no borrowings
outstanding. In addition, the Company has an unsecured revolving credit
facility with two financial institutions providing for borrowings of up to
$40.0 million, based on the amount of the Company's eligible receivables. As
of November 28, 1996, the Company was eligible to borrow $40.0 million
pursuant to this credit facility, but had no borrowings outstanding.

S-34
<PAGE>

At November 28, 1996, the Company had commitments of approximately $12.2
million for capital expenditures for expansion and upgrade of facilities and
equipment. The Company anticipates making capital expenditures in the
remainder of 1997 of approximately $70 million, which includes approximately
$35 million for anticipated expansion of the Company's PC operation facilities
in Nampa, Idaho.

The Company expects that its future working capital requirements will
continue to increase, and believes that currently available cash and cash
equivalents, future cash flows from operations, the net proceeds to the
Company from this offering, current credit facilities and future equipment
financings will be sufficient to fund its operations through fiscal 1997.
However, maintaining an adequate level of working capital through the end of
fiscal 1997 and thereafter will depend in large part on the success of the
Company's products in the marketplace and the Company's ability to control
inventory levels, component costs and other operating expenses. The Company
may require additional financing for growth opportunities, including any
internal expansion that the Company may undertake, expansion and capacity
enhancements to additional sites, or strategic acquisitions or partnerships.
There can be no assurance that any financing will be available on terms
acceptable to the Company, or at all.

S-35
<PAGE>

BUSINESS

The following discussion contains trend information and other forward-
looking statements that involve a number of risks and uncertainties. The
actual results of Micron Electronics, Inc. (together with its subsidiaries,
"MEI" or the "Company") could differ materially from the Company's historical
results of operations and those discussed in the forward-looking statements.
Factors that could cause actual results to differ materially include, but are
not limited to, those identified in "Risk Factors" and elsewhere in this
Prospectus Supplement or the accompanying Prospectus, including information
incorporated by reference in the accompanying Prospectus.

The Company is a leading provider of PC systems through the direct sales
channel in the United States. The Company's PC operation develops, markets,
manufactures, sells and supports a range of memory-intensive, high performance
desktop and notebook PC systems and network servers under the Micron brand
name. In addition to its PC operation, the Company has contract manufacturing
and component recovery operations. The Company's wholly-owned subsidiary,
Micron Custom Manufacturing Services, Inc. ("CMS"), is a contract manufacturer
specializing in the assembly of custom complex printed circuit boards, memory
modules and system level products. SpecTek, the Company's component recovery
operation, recovers, assembles, tests, grades and markets reduced
specification random access memory ("RAM") components.

The Company primarily receives orders for PC products via telephone,
facsimile and the Internet, and PC systems are generally shipped directly to
the end-customer. According to International Data Corporation ("IDC"), the
direct sales channel of the PC market in the United States is projected to
grow at a compounded annual growth rate of approximately 13.1% compared to a
projected growth rate of approximately 11.9% for the overall PC market for the
period between 1996 and 2000. In fiscal 1995 and 1996, the Company's rate of
growth in PC sales exceeded the rate of growth in the overall direct sales
channel, principally as a result of increased market awareness and acceptance
of its products. As a result, during that period the Company increased its
market share in the direct sales channel. According to a recent study
conducted by IDC, the Company is the third largest supplier of PC systems in
the direct sales channel and ninth largest in the overall PC market in the
United States.

The following summarizes the Company's net sales by product line:

<TABLE>
<CAPTION>
PRO FORMA 1994(1) PRO FORMA 1995(1) 1996 FIRST QUARTER 1997
------------------- --------------------- --------------------- -------------------
AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES AMOUNT % OF SALES
-------- ---------- ---------- ---------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PC systems.............. $366,640 56.3% $ 765,009 64.1% $1,252,492 71.0% $345,907 82.2%
Contract manufacturing.. 117,278 18.0 188,145 15.8 373,622 21.2 51,757 12.3
SpecTek memory products. 167,065 25.7 240,176 20.1 138,806 7.8 23,354 5.5
-------- ----- ---------- ----- ---------- ----- -------- -----
Total net sales......... $650,983 100.0% $1,193,330 100.0% $1,764,920 100.0% $421,018 100.0%
======== ===== ========== ===== ========== ===== ======== =====
</TABLE>
- --------
(1) On April 7, 1995, Micron Computer, Inc. ("MCI") and the former Micron
Custom Manufacturing Services, Inc. ("MCMS"), then subsidiaries of Micron
Technology, Inc. ("MTI"), merged with and into ZEOS International, Ltd.
("ZEOS"), and the surviving corporation's name was changed to "Micron
Electronics, Inc." (the "MEI Merger"). The table presents net sales of the
Company for 1996, compared to the Company's pro forma net sales for 1995
and 1994, as if the MEI Merger had occurred at the beginning of fiscal
1994, giving effect to pro forma adjustments, including amortization of
goodwill, certain product and process technology costs and related income
tax effects.

S-36
<PAGE>

PERSONAL COMPUTER SYSTEMS

STRATEGY

The Company's PC operation develops, markets, manufactures, sells and
supports a range of memory-intensive, high performance desktop and notebook PC
systems and network servers under the Micron brand name. The following are the
key elements of the Company's PC strategy:

CAPITALIZE ON DIRECT SALES CHANNEL. The Company intends to capitalize on the
advantages associated with the direct sales channel. The Company's direct
sales model allows the Company to price its PC systems competitively by
avoiding markups typical in the retail channel, limiting inventory carrying
costs and increasing inventory turnover rates. In addition, this model allows
the Company to be more responsive to changes in consumer demand and quickly
bring to market new products and technologies utilizing the most advanced
commercially available components in PC related technology. The Company
believes that direct contact with its customers enables the Company to obtain
valuable market feedback as well as generate customer loyalty. The Company's
assemble-to-order sales and manufacturing structure enables customers to order
custom system configurations by providing customers with a wide range of
available features and components.

PROVIDE HIGH PERFORMANCE PRODUCTS. The Company develops its PC systems to
take advantage of the latest developments in the PC industry. The Company
configures systems to capitalize on the performance capabilities of key
components, such as microprocessors, core logic, memory and video, sound and
storage devices. In particular, the Company believes that its relationship
with MTI has allowed it to quickly bring to market the latest advancements in
semiconductor memory products. The Company was one of the first PC
manufacturers to incorporate Extended Data Out ("EDO") DRAM in its PC systems.
The Company's PC systems have been recognized in PC industry periodicals as
being among the leaders in price/performance.

BROADEN MARKET FOCUS AND EXPAND PRODUCT OFFERINGS. Although the Company
historically has concentrated its product offerings on high-end desktop
systems for consumers and small businesses, the Company is expanding its focus
to increase its presence in larger business and government markets. The
Company believes that such markets offer opportunities for higher unit volumes
and higher overall gross margins. In addition, the Company believes that the
price/performance position of its PC systems and the advantages of its direct
sales model offer key benefits to these customers. The Company believes that
the ability to offer a comprehensive range of computer products is critical to
its success in such markets. To that end, the Company has recently introduced
new notebook and server products, as well as a broader range of desktop
products. In addition, the Company is expanding its sales and service and
support infrastructure to support this initiative.

EXPAND INTERNATIONALLY. In the first quarter of fiscal 1997 and in 1996, the
Company derived less than 10% of its PC system revenue from sales outside of
the United States. However, the Company believes that certain international
markets are experiencing growth in PC sales in excess of that currently being
experienced in the U.S. market. The Company believes that its direct sales
model and high performance product offerings will enable it to increase its
presence in selected foreign markets. In September 1996, the Company announced
its plans to establish a sales and technical support call center in Japan,
which began selling limited volumes of PC systems in November 1996. The
Company continues to evaluate expansion alternatives in other geographic
markets in which it believes that its PC systems and direct sales approach
will be well accepted.

MAINTAIN HIGH QUALITY SERVICE AND SUPPORT. The Company believes that high
levels of service and support are key factors in the customer buying decision,
particularly in the direct sales channel. In addition, the Company believes
that prompt and efficient customer service and technical support solidifies
brand loyalty and increases opportunities for continued relationships with its
customers. The

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<PAGE>

Company has invested substantial resources to increase its staff in technical
support and customer service functions and intends to continue to enhance such
functions in the future. In addition, during 1996 the Company invested in an
automated order status system and enabled access to technical support through
its home page on the Internet. Demonstrating its commitment to quality
products, service and support, the Company developed the Micron Power
warranty, which it believes is among the most comprehensive in the industry.

PRODUCTS

The Company develops, markets, manufactures, sells and supports a range of
memory-intensive, high performance desktop and notebook PC systems and network
servers under the Micron brand name. These systems use Pentium and Pentium Pro
microprocessors manufactured by Intel Corporation ("Intel") and are assembled
to order with differing memory and storage capacities as well as operating and
applications software. The Company also offers a variety of peripheral
products with its PC systems, including monitors, modems, graphics cards,
accelerators, CD-ROM drives and printers.

The Company's assemble-to-order sales and manufacturing structure enables
customers to order custom system configurations. This structure also provides
customers with the flexibility to select modifications to certain standard
configurations including, among others, a wide variety of Intel Pentium and
Pentium Pro microprocessors, including the latest Pentium microprocessors with
MMX technology, EDO main system memory generally in 8MB increments up to
128MB, Enhanced IDE or SCSI hard disk drives ranging from 1.2GB to 9.0GB, and
monitors ranging from 14 inch to 21 inch.

The Company's product line includes the following:

MILLENNIA. The Millennia products are the fastest Pentium and Pentium Pro
microprocessor-based computer systems available in the Company's product
offerings. The Millennia LXA comes with Pipeline Burst SRAM cache and EDO DRAM
memory. The Millennia MXE line incorporates Intel's MMX technology
microprocessors for improved multimedia performance. The Millennia MXE Plus
line adds SCSI standards to the base Millennia MXE line. The Millennia Pro2
and the Millennia Pro2 Plus are high-end workstations designed specifically
for 32-bit and graphic-intense applications. Standard Millennia Pro2 and
Millennia Pro2 Plus products utilize Pentium Pro microprocessors and are
available in various hardware, software and operating system configurations.

TRANSPORT. Designed for all users, the TransPort is the Company's notebook
line of PC systems. The TransPort incorporates much of the same technology
used in the Millennia desktop lines and can serve as a desktop replacement.
With two modular bays, the TransPort line offers customers instant custom
configuration changes between hard disk drives, floppy disk drives, CD-ROM
drives and an extra battery. The Company's TransPort XPE line offers customers
a high-performance notebook system utilizing Intel Pentium microprocessors
with MMX technology providing clearer sound and full-motion video.

HOME MPC. The Home MPC line includes Pentium microprocessor-based multimedia
computers designed primarily for high performance home use. With an emphasis
on multimedia and connectivity, the Home MPC standard configurations include a
sound card, speakers, a CD-ROM drive, an internal modem and Internet browser
software. In addition, the Home MPC is bundled with a variety of software for
home use, personal finance, education and entertainment.

CLIENTPRO. The ClientPro line is the Company's flexible and affordable
network solution for businesses which require computing stability and
performance. The ClientPro is designed to provide reliable, adaptable
computing without the need for frequent system upgrades.

VETIX. The Vetix line of network servers provides a comprehensive network
computing solution. Designed for growing businesses that require lower-cost
servers customized to their particular needs, the Vetix servers are also
tailored for work groups and remote sites.

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<PAGE>

The following chart lists the Company's current product lines as well as
certain information relating thereto (configurations listed below are subject
to change):

<TABLE>
<CAPTION>
PRODUCT LINE PROCESSOR TYPE AND SPEED SAMPLE KEY FEATURE SET
- ------------ ------------------------ ----------------------
<S> <C> <C>
DESKTOP PRODUCTS
MILLENNIA LXA Intel Pentium Processors: 512K pipeline burst SRAM cache
133MHz 32MB EDO RAM (up to 128 MB)
166MHz 12X IDE CD-ROM drive
200MHz 2.5GB IDE hard drive
Diamond Stealth 3D 2000 Video
Card w/2MB EDO RAM
17" .26 SVGA monitor
Microsoft Windows 95 & Plus!
Microsoft Works 95
- ----------------------------------------------------------------------------------------
MILLENNIA MXE Intel Pentium Processors: 512K pipeline burst SRAM cache
166MHz with MMX technology 64MB EDO DRAM (up to 128 MB)
200MHz with MMX technology 12X IDE CD-ROM drive
100MB lomega Zip Drive
3.1GB IDE hard drive
Diamond Stealth 3D 2000 Video
Card w/4MB EDO RAM
17" .26 SVGA monitor
Creative Labs SoundBlaster 32
Voice 3D stereo sound
Powered speakers
Microsoft Windows 95 & Plus!
Microsoft Office Pro 95 &
Bookshelf 95
- ----------------------------------------------------------------------------------------
MILLENNIA MXE PLUS Same as Millennia MXE Generally same feature set as
Millennia MXE with SCSI devices.
- ----------------------------------------------------------------------------------------
MILLENNIA PRO2 Intel Pentium Pro Processors: 256K Internal CPU SRAM cache
180MHz 32MB EDO RAM (up to 128 MB)
200MHz 12X IDE CD-ROM drive
3.1GB IDE hard drive
Diamond Stealth 3D 2000 Video
Card w/4MB EDO RAM
17" .26 SVGA monitor
Integrated Creative Labs
SoundBlaster 16
Powered speakers
Microsoft Windows 95 & Plus!
Microsoft Office Pro 95 &
Bookshelf 95
- ----------------------------------------------------------------------------------------
MILLENNIA PRO2 PLUS Same as Millennia Pro2 Generally same feature set as
Millennia Pro2 with dual
processors, 128MB EDO RAM, 21"
.26 SVGA monitor, SCSI devices.
</TABLE>

- -------------------------------------------------------------------------------

S-39
<PAGE>

<TABLE>
<CAPTION>
PRODUCT LINE PROCESSOR TYPE AND SPEED SAMPLE KEY FEATURE SET
- ------------ ------------------------ ----------------------
<S> <C> <C>
HOME MPC Intel Pentium Processors: 512K pipeline burst SRAM cache
133MHz 32MB EDO RAM (up to 128 MB)
12X IDE CD-ROM drive
166MHz 2.5GB EIDE hard drive
200MHz Diamond Stealth 3D 2000 Video
Card w/2MB EDO RAM
17" .26 SVGA monitor
33.6Kb Internal Telephony
Fax/Modem with speaker phone and
voice mail
Creative Labs SoundBlaster 32
voice 3D wavetable stereo sound
Advent AV270 powered partners
stereo speakers
Microsoft Windows 95 & Plus!
Microsoft Office Pro 95 &
Bookshelf 95
Internet Ready
Variety of home-oriented
software, including Quicken
Financial Pak and Microsoft Home
Pak V
- ----------------------------------------------------------------------------------------
CLIENTPRO Intel Pentium Processors: 256K pipeline burst SRAM cache
120MHz 16MB EDO RAM (up to 128MB)
133MHz 2.1GB EIDE hard drive
166MHz PCI 64-bit graphics accelerator
200MHz w/2MB EDO RAM
3COM 3C509 Ethernet Combo
15" .28 SVGA monitor
Microsoft Windows 95
Microsoft Works 3.0
- ----------------------------------------------------------------------------------------
CLIENTPRO2 Intel Pentium Pro Processors: 256K Internal L2 Secondary SRAM
180MHz cache
200MHz 32MB EDO RAM (up to 128 MB)
3.1GB EIDE hard drive
PCI 64-bit graphics accelerator
w/2MB EDO RAM
3COM 3C509 Ethernet Combo
17" .26 SVGA monitor
Microsoft Windows NT 4.0 or
Windows 95 & Plus!
Microsoft Office Pro 95
</TABLE>

S-40
<PAGE>

<TABLE>
<CAPTION>
PRODUCT LINE PROCESSOR TYPE AND SPEED SAMPLE KEY FEATURE SET
- ------------ ------------------------ ----------------------
<S> <C> <C>
PORTABLE PRODUCTS
TRANSPORT Intel Mobile Pentium Processors: 256K L2 pipeline burst cache
AND TRANSPORT MRX 133MHz 32MB EDO RAM (up to 48MB)
8X modular CD-ROM drive
2.1GB removable EIDE hard drive
PCI graphics accelerator, 1MD EDO
RAM
Pick-a-Point dual pointing
devices
Intelligent modular lithium-ion
battery
12.1" active matrix display,
800 x 600
3.5" modular floppy drive
Creative Labs SoundBlaster 16
Built-in stereo speakers &
microphone
2 Type II/ 1 Type III PCMCIA
slots
2 infrared ports
S-Video & NTSC video outputs
33.6Kb fax/modem
Leather carrying case
Microsoft Windows 95 & Plus!
Microsoft Office Pro 95 &
Bookshelf 95
Optional matching black 17"
monitor, mouse and keyboard
Optional port replicator,
including LAN adapter
- ----------------------------------------------------------------------------------------------
TRANSPORT XPE Intel Pentium Processors: Generally same feature set as
150MHz with MMX technology TransPort with MMX technology,
166MHz with MMX technology 32MB EDO RAM (up to 80MB), PCI
graphics accelerator with 2MB
VRAM
- ----------------------------------------------------------------------------------------------
SERVER PRODUCTS
VETIX Intel Pentium Pro Processors: Single or dual processors
180MHz 256K L2 cache
200MHz 128MB ECC RAM (up to 512MB)
5 slots: 3PCI, 1 ISA one PCI/ISA
shared slot
PCI SCSI controller
12X SCSI-2 CD-ROM drive
9.0GB Ultra SCSI hard drive
ISA 64-bit graphics accelerator
w/1MB DRAM
3COM 3C905 PCI 10/100 Fast
Etherlink XL
Full-size tower with 10 drive
bays
15" .28 SVGA monitor
Novell IntranetWare 4.11 or
Microsoft NT Server 4.0
DOS 6.22
</TABLE>

S-41
<PAGE>

MANUFACTURING AND MATERIALS

The Company's PC system manufacturing process is designed to provide custom-
configured PC products to its customers, and includes assembling components,
loading software and testing each system prior to shipment. The Company's PC
systems are generally assembled to customer specifications. Inventories of
certain components are staged for system assembly at their point of use. While
custom assembly is advantageous to its customers, the Company is unable to
achieve the level of manufacturing efficiency normally associated with high
volume production of standardized products. To facilitate rapid delivery under
the Company's Computers Now! program, a limited number of the most popular PC
system configurations are assembled in advance of customer orders by third
parties, under the indirect supervision and management of personnel of the
Company.

The Company's desktop PC systems are generally assembled in its own
facilities. The Company's notebook PC systems are designed to include feature
sets defined by the Company but are assembled by a third-party supplier and
sent to the Company for final custom configuration and testing. Following
assembly, PC systems are powered up, downloaded with software and subjected to
certain diagnostic tests, including evaluation of each system's functionality
and quality. Upon completion of the process, PC systems undergo a final
inspection, after which the systems are packaged and shipped to customers.

The Company relies on third-party suppliers for its PC system components and
seeks to identify suppliers which can provide state-of-the-art technology,
product quality and prompt delivery at competitive prices. The Company
purchases substantially all of its PC components and subassemblies from
suppliers on a purchase order basis and generally does not have long-term
supply arrangements with its suppliers. Certain components, subassemblies and
software are available only from sole suppliers or a limited number of
suppliers. The microprocessors used in the Company's PC systems are
manufactured exclusively by Intel. From time to time, the Company has been
unable to obtain sufficient quantities of certain Intel microprocessors to
permit the Company to meet demand for its products. See "Risk Factors--
Personal Computer Systems--Inventory Management" and "--Dependence on Key
Sources of Supply." The Company currently purchases a significant portion of
its motherboards from a single source. In addition, a significant portion of
the RAM components used in the Company's PC systems are supplied by MTI and
the Company expects to continue to rely on MTI as its primary source of RAM.
Although most other components and subassemblies used by the Company are
currently available from multiple sources, the Company has from time to time
experienced shortages in components and subassemblies used in its PC systems.
Any interruption in the supply of any key components or subassemblies used in
the Company's PC systems, could result in production delays and adversely
affect the Company's business and results of operations. See "Risk Factors--
Personal Computer Systems--Dependence on Key Sources of Supply."

MARKETING AND SALES

The Company's direct marketing approach is aimed toward PC users who
evaluate products based on performance, price, reliability, service and
support. The Company's customer base is

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<PAGE>

comprised primarily of individuals, small to medium-sized businesses and
governmental and educational entities. The Company markets its PC systems
primarily by strategically placing advertisements in personal computer trade
publications, submitting its products for review and evaluation by these
publications and advertising its products on its home page on the Internet.
The Company also markets its PC systems through direct-mail campaigns and
sells a limited number of PCs through its three factory outlet stores located
in Idaho, Minnesota and Utah. In addition, the Company sells its products to
governmental agencies through the U.S. Government's General Services
Administration's Vendor program and through strategic relationships with third
parties having large government procurement contracts. Pricing and terms for
such procurement contracts are generally subject to renegotiation or
termination by third parties and governmental entities.

By focusing on the direct sales channel, the Company is able to avoid dealer
markups typically experienced in the retail sales channel, can limit inventory
carrying costs and can maintain closer contact with its target markets.
Consumers seeking high performance systems at competitive prices have
historically referenced computer trade magazines, and more recently have begun
utilizing information available on the Internet, to evaluate systems and
configurations best suited to their particular needs. The Company believes
that customer interest in its PC systems has grown significantly, and brand
name recognition and market acceptance of the Company's products has
increased, partially as a result of the receipt of awards from PC trade
publications recognizing the price and performance characteristics of Micron
brand PC systems and the Company's service and support functions. There can be
no assurance that the Company's name recognition and the market acceptance of
its PC products will not decline in the future, which could have a material
adverse effect on the Company's business and results of operations. There can
be no assurance that direct sales of PC systems as a percentage of industry-
wide PC sales will increase or that the Company will increase its share of the
direct sales market in the future. There can also be no assurance that PC
companies that currently distribute their PC systems primarily through
distributors and resellers will not implement or devote additional resources
to a direct sales strategy, or that the direct sales strategy will be
successful in international markets. Any decline in the rate of growth of the
PC direct sales channel or the Company's failure to compete successfully in
the direct sales channel could have a material adverse effect on the Company's
business and results of operations. See "Risk Factors--Personal Computer
Systems--Reliance on the Direct Sales Approach."

Direct sales orders are received primarily via telephone, facsimile and the
Internet. Sales representatives of the Company assist customers in determining
system configuration, compatibility and current pricing. Customers generally
order systems configured with varying feature sets differentiated by
microprocessor speed, hard drive capacity, amount of memory, monitor size and
resolution and bundled software, as well as other features. The Company offers
its customers a variety of payment alternatives, including commercial trade
terms, lease financing, cash on delivery, its own private label credit card
and other credit cards.

PRODUCT WARRANTIES AND TECHNICAL SUPPORT

The Company believes that PC product warranties and technical support
programs are key factors in achieving desired levels of customer satisfaction.
The Company believes its Micron Power warranty is among the most comprehensive
in the industry. The key elements of the Company's PC product warranties and
technical support programs are as follows:

30-DAY MONEY BACK GUARANTEE AND MICRON POWER WARRANTY. Customers may
generally return products purchased from the Company within 30 days after
shipment for a full refund of the purchase price. The Company generally sells
each system with the Micron Power warranty, a five-year limited warranty on
the microprocessor and main memory and a three-year limited warranty on the
remaining hardware. The Micron Power warranty covers repair or replacement for
defects in workmanship or materials.

S-43
<PAGE>

TECHNICAL SUPPORT. The Company offers its customers telephone access to free
technical support services (toll-free in the United States). The Company's
technical support and customer service representatives respond to a variety of
inquiries from customers, including questions concerning the Company's product
offerings, customer order status and post-installation hardware and software
issues. Many customer inquiries are resolved over the telephone without the
need to repair or replace system components. When repairs are necessary, the
Company may ship a replacement part and advise customers via telephone
regarding installation, or a customer may elect to ship a system directly to
the Company for repair. Certain warranty services for notebook systems are
provided by a third party. Technical support services are also provided
through the Company's home page on the Internet and through an electronic
bulletin board system. These services enable a customer to access system-
specific information and recent software updates for many of the software
programs and drivers included with the Company's systems. Certain customers
have an option to purchase on-site service from a third-party service
provider.

BACKLOG

Levels of unfilled orders for PC systems fluctuate depending upon component
availability, demand for certain products, the timing of large volume customer
orders and the Company's production schedules. Customers frequently change
delivery schedules and orders depending on market conditions and other
reasons. Unfilled orders can be canceled by the customer any time prior to
shipment. As of August 29, 1996, the Company had unfilled orders for PC
systems of approximately $63 million compared to $46 million as of August 31,
1995. The Company had unfilled orders for PC systems of $88 million as of
November 28, 1996. The Company anticipates that substantially all unfilled
orders, other than those subsequently canceled, will be shipped within 45
days. Due to a customer's ability to cancel or reschedule orders without
penalty, industry seasonality, critical component availability and customer
buying patterns, unfilled orders may not be representative of actual sales for
any succeeding period. The Company's past operating results have been, and its
future operating results may be, subject to seasonality and other
fluctuations, on a quarterly and an annual basis, as a result of a wide
variety of factors. See "Risk Factors--General--Fluctuations in Operating
Results."

COMPETITION

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<PAGE>

to its competitors. In addition, to remain competitive, the Company generally
reduces the selling prices of its PC systems in connection with declines in
its costs of components. The Company competes with a number of PC
manufacturers which sell their products primarily through direct channels,
including Dell Computer, Inc. and Gateway 2000, Inc. The Company also competes
with PC manufacturers, such as Apple Computer, Inc., Compaq Computer
Corporation, Hewlett-Packard Company, International Business Machines
Corporation and Toshiba Corporation, among others, which have traditionally
sold their products through national and regional distributors, dealers and
value added resellers, retail stores and direct sales forces. Many of the
Company's PC competitors offer broader product lines, have substantially
greater financial, technical, marketing and other resources than the Company
and may benefit from component volume purchasing arrangements that are more
favorable in terms of pricing and component availability than the arrangements
enjoyed by the Company. In addition, as a result of PC industry standards, the
Company and its competitors generally use many of the same components,
typically from the same set of suppliers, which limits the Company's ability
to technologically and functionally differentiate its products. In the future,
the Company expects to face increased competition in the U.S. direct sales
market from foreign PC suppliers and from indirect domestic suppliers of PC
products that decide to implement, or devote additional resources to, a direct
sales strategy and from increased price competition from existing suppliers of
PC systems in the direct sales channel. In order to gain an increased share of
the U.S. PC direct sales market, these competitors may effect a pricing
strategy that is more aggressive than the current pricing in the direct sales
market. The Company's ability to continue to produce competitively priced
products and to maintain existing gross margin percentages will depend, in
large part, on the Company's ability to sustain high levels of sales and
contain and reduce manufacturing and component costs. Any failure by the
Company to transition to new products effectively or to accurately forecast
demand for its products may have an adverse effect on the Company's business
and results of operations.

CONTRACT MANUFACTURING

STRATEGY

The Company's wholly-owned subsidiary, Micron Custom Manufacturing Services,
Inc. ("CMS"), is a contract manufacturer specializing in the assembly of
custom complex printed circuit boards, memory modules and system level
products. CMS establishes strategic relationships with OEM customers to
provide turnkey manufacturing and other related services for cost-effective
solutions to their manufacturing requirements. The Company intends to continue
to be responsive to the changing demands and evolution of services in this
highly competitive industry in order to strengthen its current long-term
relationships and to develop new relationships with medium to large-sized
OEMs. To better serve its customer base and develop new business
opportunities, CMS plans to continue to broaden its engineering and
manufacturing services and to expand its operational sites both in the
United States and internationally. In the first quarter of fiscal 1997, the
Company established a contract manufacturing operation in Penang, Malaysia,
which completed its first product shipment in the second quarter of fiscal
1997. See "Risk Factors--General--International Operations."

PRODUCTS

The assembly of electronic products has become increasingly sophisticated
and complex and requires substantial capital investment. In response, many
OEMs are adopting manufacturing outsourcing strategies and relying on
manufacturing specialists to support their production needs. OEMs generally
use contract manufacturers to gain access to leading manufacturing expertise,
reduce time to market, enhance their financial flexibility and improve
inventory management. The Company's contract manufacturing operations consist
of assembling and testing complex printed circuit boards, memory modules and
"box build" final product assembly services. In addition to assembly and test
functions, the Company offers a broad range of manufacturing services,
including design lay-out and

S-45
<PAGE>

product engineering, materials procurement, turnkey and consignment inventory
management, quality assurance and just-in-time delivery.

MANUFACTURING AND MATERIALS

The Company uses numerous suppliers for the electronic components and
materials, including RAM components, used in its contract manufacturing
operation. In the first quarter of fiscal 1997 and in 1996, 1995 and 1994, the
Company purchased approximately 26%, 27%, 41% and 58%, respectively, of the
full specification RAM components used in its contract manufacturing operation
from MTI. Such purchases are made by the Company from MTI on a purchase order
basis at negotiated prices, and no long-term agreement exists between the
Company and MTI for the supply of such components. Shortages of certain types
of electronic components, including RAM components, have occurred in the past
and may occur in the future. Component shortages or price fluctuations could
have a material adverse effect on the Company's business and results of
operations.

The Company procures its materials and components based on purchase orders
received and accepted from its customers while seeking to minimize its overall
level of inventory. However, the Company's contract manufacturing customers
generally require short delivery cycles and quick turnaround and a substantial
portion of contract manufacturing orders are scheduled for delivery within 90
days. Although the Company obtains long-term product forecasts from certain of
its OEM customers, the Company generally does not have long-term purchase
commitments from its customers and periodically makes capital expenditures and
other commitments and may incur inventory costs based on anticipated orders.
As the Company's OEM customers react to variations in demand for their
products due to, among other things, product life cycles, competitive
conditions or general economic conditions, and adjust their manufacturing
strategies accordingly, the Company is exposed to the risk of its own non-
cancelable purchase orders with its suppliers and to market risks for raw
materials, work in process and finished goods inventories. From time to time,
anticipated orders from the Company's OEM customers have failed to
materialize, or delivery schedules have been deferred as a result of changes
in the customer's business, adversely affecting the Company's business and
results of operations. See "Risk Factors--Contract Manufacturing--Fluctuations
in OEM Orders."

Nearly all of the products manufactured by the Company's contract
manufacturing operation are assembled utilizing surface mount technology
("SMT"), whereby the leads on integrated circuits and other electronic
components are soldered to the surface of printed circuit boards. SMT assembly
requires expensive capital equipment and a high level of process expertise.
The Company has five single-side SMT lines and two double-side, continuous
flow SMT lines in its Nampa, Idaho facility. In addition, CMS has four single-
side SMT lines at its Durham, North Carolina facility.

The Company's contract manufacturing operation performs automated in-circuit
and functional testing, and has the capability to perform environmental stress
testing as requested by customers. As the density and complexity of electronic
circuitry increases, the Company anticipates a need to invest in more
sophisticated automated test equipment and inspection systems that provide
both three dimensional and X-ray inspection of in-process and final products.

The Company also utilizes chip on board ("COB") technology in its
manufacturing processes. COB technology, including multi-chip module assembly,
utilizes unpackaged semiconductor die which are attached to a printed circuit
board and then sealed with epoxy. COB is well-suited for applications
involving small form factor and high lead count products. The Company also has
the capability to utilize ball grid array ("BGA") packaging technology in its
assembly process. This packaging technique utilizes an array of "solder balls"
in a matrix across the bottom of a component package as opposed to attaching
leads around the perimeter of the die. This emerging technology in packaging
is typically utilized for high pin count integrated circuits.

S-46
<PAGE>

MARKETING AND SALES

The Company markets its contract manufacturing services through a direct
sales force that interfaces with independent sales representatives and OEMs.
The Company's contract manufacturing marketing effort is augmented by MTI's
sales force, which also markets the Company's services to MTI's customer base.
The Company's contract manufacturing marketing efforts also include
participating in industry conferences and publishing articles in trade
journals.

PRODUCT WARRANTIES

The Company generally offers a 90-day warranty on the workmanship of its
contract manufacturing services. However, warranties are frequently negotiated
with each customer and may therefore be greater than or less than 90 days for
any given contract. Generally, a considerable amount of time and effort is
invested in the start-up phase of each project. As a result, the Company has
not typically experienced significant warranty claims for its contract
manufacturing services. However, there can be no assurance that the Company
will not experience significant future warranty claims with respect to its
contract manufacturing services.

BACKLOG

Backlog generally consists of purchase orders believed to be firm that are
expected to be filled within the next three months. Backlog for the Company's
contract manufacturing operation as of November 28, 1996, August 29, 1996 and
August 31, 1995 was approximately $64 million, $52 million and $95 million,
respectively. The lower level of backlog as of November 28, 1996 and August
29, 1996 compared to August 31, 1995 was primarily attributable to the decline
in selling prices for semiconductor memory. Because of variations in the
timing of orders, delivery intervals, material availability, customer and
product mix and delivery schedules, among other reasons, the Company's
contract manufacturing backlog as of any particular date may not be
representative of actual sales for any succeeding period.

COMPETITION

The contract manufacturing industry is highly competitive. The Company's
contract manufacturing operation competes against numerous domestic and
offshore contract manufacturers, including a significant number of local and
regional companies. In addition, the Company competes against in-house
manufacturing capabilities of certain of its existing customers as well as
with certain large computer manufacturers which also offer third-party
contract manufacturing services. The Company's contract manufacturing
competitors include, among others, Avex Electronics, Inc., Benchmark
Electronics, Inc., Celestica Inc., DOVAtron International, Inc., Flextronics
International, Group Technologies Corporation, Jabil Circuits, Inc., Sanmina
Corporation, SCI Systems, Inc. and Solectron Corporation. Many of the
Company's competitors have substantially greater manufacturing, technical,
financial, personnel, marketing and other resources than the Company and have
manufacturing operations at multiple domestic and overseas locations.

The Company believes the significant competitive factors in contract
manufacturing industry include service, quality, price, technology, location
and the ability to offer flexible delivery schedules and deliver finished
products on an expeditious and timely basis in accordance with customers'
expectations. The Company may be at a disadvantage as to certain competitive
factors when compared to manufacturers with greater resources than the
Company, substantial offshore facilities or substantially larger domestic
facilities. There can be no assurance that the Company's contract
manufacturing operations will compete successfully in the future with regard
to these factors. In order to remain competitive, the Company may be required
to expand its contract manufacturing capacity and may be required to establish
additional international operations. There can be no assurance that

S-47
<PAGE>

the Company will be successful in expanding its contract manufacturing
operation on a timely and efficient basis. The failure to do so could have a
material adverse effect on the Company's business and results of operations.

SPECTEK MEMORY PRODUCTS

STRATEGY

SpecTek, the Company's component recovery operation generally recovers,
assembles, tests, grades and markets reduced specification RAM components. The
Company seeks to maximize its return on sales of reduced specification RAM
components and to develop custom applications for certain of these devices
with strategic OEM customers. By working with its customers to develop new
applications utilizing reduced specification RAM products, the Company is able
to offer low cost memory solutions and to increase assurance of component and
product compatibility for its OEM customers. The Company intends to continue
to invest in specialized testing of reduced specification memory products in
order to meet customer technical requirements and expand market acceptance of
its products.

PRODUCTS

The Company obtains nonstandard RAM components from certain semiconductor
memory manufacturers, generally tests and grades components to their highest
functional level and identifies applications in which these RAM components
offer a low-cost memory solution. The Company markets reduced specification
RAM components for a wide variety of applications such as PC systems and
peripherals, telephone answering machines, electronic games and office
equipment.

Historically, a substantial majority of the nonstandard RAM components used
in the Company's SpecTek memory products operation has been obtained from MTI.
See "Certain Relationships and Transactions with Micron Technology, Inc.--
Supply of Nonstandard and Full Specification RAM Components." In the first
quarter of fiscal 1997 and in 1996, 1995 and 1994, the Company obtained
approximately 71%, 61%, 89% and 98%, respectively, of its nonstandard RAM
components from MTI. Pursuant to its arrangements with the Company, MTI has
been and is required to deliver to the Company all of the nonstandard RAM
components produced at MTI's semiconductor manufacturing operation. In the
first quarter of fiscal 1997 and in 1996, the Company purchased a substantial
majority of the remainder of its nonstandard RAM components from a single
third-party alternative source. There can be no assurance that nonstandard RAM
components obtained from MTI or purchases of components from any alternative
sources will continue at quantities sufficient to sustain the Company's
SpecTek memory products operation at their existing or historic levels. The
Company intends to continue to pursue additional third-party sources of
nonstandard RAM components; however, there can be no assurance that
significant additional supplies will be obtained. See "Risk Factors--SpecTek
Memory Products Operation--Dependence on Component Recovery Agreement with
MTI."

MANUFACTURING AND MATERIALS

The Company's SpecTek memory products operation requires a significant
investment in sophisticated testing hardware and software and expertise in
semiconductor memory products and manufacturing processes. The semiconductor
memory manufacturing process involves a highly complex series of steps
performed to create specific electronic features on silicon wafers. Recovery
of nonstandard RAM components within the semiconductor manufacturing process
is generally performed at two stages: the wafer probe stage and the test
function stage. The first test of electrical functionality is performed in the
semiconductor memory manufacturing process at the wafer probe stage, where die
not meeting certain functionality or performance characteristics are
segregated while

S-48
<PAGE>

those die which potentially meet full performance specifications continue in
the manufacturing process to assembly and test. Although a majority of the
Company's nonstandard RAM components is identified for recovery by
semiconductor memory manufacturers during the test function, the Company
maintains personnel in MTI's semiconductor memory manufacturing facility to
identify nonstandard die at the wafer probe stage which may qualify for
recovery. Once nonstandard die are identified as recoverable at wafer probe,
the die are assembled by MTI and delivered to the Company for testing and
grading.

Upon delivery to the Company, nonstandard RAM components are grouped
according to device and package type and staged for a specific sequence of
electrical, environmental and mechanical tests identified for that group. The
Company's test and product engineers develop the complex testing algorithms
and procedures necessary to recover nonstandard RAM components on a cost-
effective basis. The Company's engineers also develop and implement
proprietary software and hardware modifications to automated test and handling
equipment. Throughout the testing process, nonstandard RAM components are
graded in an effort to segregate less functional components and to minimize
additional testing with respect to such components. The semiconductor
manufacturers' markings are removed during the recovery process and the
devices are remarked with the SpecTek brand name or a specific customer's
device marking. Test and product engineers develop burn-in testing procedures
in order to increase assurance of reliability for devices being produced. The
Company's SpecTek memory products operation strives to maintain close working
relationships between its engineering staff and its customers, and modifies
its test procedures and test specifications to ensure generally that reduced
specification RAM components properly address customer performance
requirements. Once all electrical and environmental testing is accomplished,
the devices are subjected to automated and human inspection in order to verify
that the devices meet mechanical and cosmetic specifications relating to
package, mark and device lead integrity.

Many semiconductor memory manufacturers are reluctant to sell reduced
specification RAM components because such components could compete with their
full specification RAM components for similar applications. In addition, some
manufacturers are concerned that subsequent testing performed by a recovery
operation could reveal proprietary data regarding manufacturer yields and
processes. As a result, there can be no assurance that the Company will be
able to obtain nonstandard RAM components from semiconductor manufacturers in
quantities sufficient to meet demand for the Company's products. Any reduction
in the availability or functionality of nonstandard RAM components from the
Company's suppliers could have a material adverse effect on the Company's
business and results of operations. See "Risk Factors--SpecTek Memory Products
Operation--Dependence on Component Recovery Agreement with MTI."

MARKETING AND SALES

The Company's reduced specification RAM components are marketed primarily to
domestic customers through the Company's direct sales force and to
international customers through manufacturing representatives. In the first
quarter of fiscal 1997 and in 1996, the Company's SpecTek memory products
operation experienced significant growth in units and total megabits shipped;
however, net sales in 1996 were negatively impacted by a sharp decline in the
market price for semiconductor memory products. The market for semiconductor
memory historically has been quite volatile and has experienced significant
downturns characterized by diminished product demand, production overcapacity
and declines in average selling prices.

S-49
<PAGE>

products experienced a sharp decline. The Company believes such decline in
average selling prices of semiconductor memory products was due primarily to
changes in the balance of supply and demand for these commodity products, and
the Company is unable to predict the impact of semiconductor memory product
market dynamics in future periods. Due to increased market risk associated
with holding purchased memory components in inventory, the Company has
experienced in the past, and may experience in the future, losses from write
downs of memory component inventories in periods of declining prices. Further
declines in industry-wide pricing for semiconductor memory products would
likely result in declines in average selling prices of the Company's reduced
specification RAM products, which could have a material adverse effect on the
Company's business and results of operations. See "Risk Factors--SpecTek
Memory Products Operation--Pricing of RAM Products."

PRODUCT WARRANTIES

The Company typically offers a 90-day limited warranty on reduced
specification RAM components. Longer warranties are offered only in special
circumstances. Although the Company's historical warranty claims with respect
to reduced specification RAM components have not been material, there can be
no assurance that the Company will not experience significant future warranty
claims with respect to reduced specification RAM components.

BACKLOG

The Company's SpecTek memory products customers generally do not order with
long lead times, and orders are frequently placed with a provision to
renegotiate price at or close to the time of shipment. Therefore, the Company
does not believe any backlog of orders for its reduced specification memory
products is a firm or reliable indication of actual sales for any succeeding
period.

COMPETITION

The principal competitive factors in the Company's SpecTek memory products
operation are access to sources of nonstandard RAM components, testing
capabilities, selling prices for reduced specification RAM components and
applications engineering. The price of reduced specification RAM components is
directly influenced by the price of full specification RAM components, and as
higher density memory devices become more prevalent, error correction
technologies and solutions improve, semiconductor memory manufacturers have
sought ways to recover a portion of their manufacturing costs through recovery
of nonstandard RAM components that do not meet full industry specifications.
Certain manufacturers have established internal capabilities and independent
companies are pursuing opportunities to recover, test and market such
components. As more semiconductor memory manufacturers recover nonstandard RAM
components, the pressure on the remaining manufacturers may increase to
develop similar programs, whether internal or external, in order to generate
revenue for their nonstandard RAM components. In addition to supplying reduced
specification RAM components in the market, in-house recovery operations
eliminate a potential source of supply of nonstandard RAM components to the
Company. Upon termination or expiration of the Component Recovery Agreement,
MTI could develop its own recovery operation. The loss of a sourcing
arrangement, particularly the Company's arrangement with MTI, could have a
material adverse effect on the Company's business and results of operations.
See "Risk Factors--SpecTek Memory Products--Dependence on Component Recovery
Agreement with MTI."

EXPORT SALES

The Company's export sales totaled approximately $181 million, $77 million
and $26 million in fiscal 1996, 1995 and 1994, respectively. Export sales were
approximately $22 million and $41 million in the three months ended November
28, 1996 and November 30, 1995, respectively, primarily as a result of a
decrease in sales of its PC systems through distributors in Japan as the
Company initiated direct sales of PC systems through its Japanese call center.
Export sales are denominated primarily in United States dollars.

S-50
<PAGE>

INTELLECTUAL PROPERTY

As of November 28, 1996, the Company held 21 United States patents and 10
non-U.S. patents relating to the use of its products and processes. In
addition, the Company is the holder of a number of trademarks and registered
trademarks.

It is common in the electronics industry for patent, trademark and other
intellectual property right claims, to be asserted against companies,
including component suppliers and PC manufacturers. Periodically, the Company
is made aware that the technology used by the Company may infringe on
intellectual property technology rights held by others. The Company evaluates
all such claims and, if necessary, obtains licenses for the continued use of
such technology. The Company has accrued a liability and charged operations
for the estimated costs of settlement or adjudication of asserted and
unasserted claims for alleged infringement arising prior to the balance sheet
date. The Company would be placed at a competitive disadvantage if it were
unable to obtain such licenses upon terms at least as favorable as those
experienced by the Company's competitors. The Company has entered into several
patent and software license agreements, which generally require one-time or
periodic royalty payments and are subject to expiration at various times. The
Company is unable to predict whether any of these license agreements can be
obtained or renewed on terms acceptable to the Company. If the Company or its
suppliers are unable to obtain or provide licenses necessary to use technology
or software in their products or processes, the Company may be forced to
market products without certain technological features or software,
discontinue sales of certain of its products or defend legal actions taken
against it relating to allegedly patent or copyright protected technology. The
inability of the Company to obtain licenses necessary to use certain
technology or an inability to obtain such licenses on competitive terms, or
any litigation determining that the Company, in its manufacturing processes or
products, has infringed on the intellectual property rights held by others,
could have a material adverse effect on the Company's business and results of
operations. See "Risk Factors--General--Intellectual Property Matters."

RESEARCH AND DEVELOPMENT

The Company maintains a research and development operation which had
approximately 40 employees as of November 28, 1996. This research and
development group focuses its efforts on PC systems, including: motherboards;
embedded PCs, such as those used in point of sale terminal and
telecommunication systems; core logic; PC BIOS development; and other PC-
related products. In addition to assisting the Company's PC operation and its
suppliers to maximize the performance of new technologies in the PC industry,
the Company's research and development operation performs contract design and
engineering services. From concept to completed product, the Company performs
circuit and core logic design and development and works with contract
manufacturers to build the final product. There can be no assurance that the
Company will continue to have access to new technology,

S-51
<PAGE>

be successful in incorporating such new technology in its products or deliver
commercial quantities of new products or features in a timely and cost-
effective manner.

EMPLOYEES

As of November 28, 1996, the Company employed approximately 2,250 people in
its PC operation, 880 people in its contract manufacturing operation and 300
people in its SpecTek memory products operation, nearly all of whom are
located in the United States, and none of whom are represented by a labor
organization with respect to their employment by the Company. The Company has
never had an organized work stoppage and considers its employee relations to
be satisfactory.

ENVIRONMENTAL REGULATIONS

Some risks of costs and liabilities related to environmental matters are
inherent in the Company's business, as with many similar businesses, and the
Company's operations are subject to certain federal, state and local
environmental regulatory requirements relating to environmental and waste
management. There can be no assurance that material costs and liabilities will
not be incurred in maintaining or establishing compliance with current or
future requirements. The Company believes that its business is operated in
compliance with applicable environmental regulations, the violation of which
could have a material adverse effect on the Company. In the event of
violation, these regulations provide for civil and criminal fines, injunctions
and other sanctions and, in certain instances, allow third parties to sue to
enforce compliance. In addition, new, modified or more stringent requirements
or enforcement policies could be adopted that may adversely affect the
Company's business and results of operations. The Company periodically
generates and handles limited amounts of materials that are considered
hazardous waste under applicable law. The Company's contracts for the off-site
disposal of these materials. See "Risk Factors--Contract Manufacturing--
Environmental Regulation."

PROPERTIES

The Company's corporate headquarters, PC manufacturing operation, a majority
of its contract manufacturing operation and SpecTek memory products operation
are based in a number of facilities aggregating approximately 577,000 square
feet located in Nampa, Idaho. Approximately 136,000 square feet of the Nampa
facilities are dedicated to PC manufacturing, approximately 146,000 square
feet are dedicated to contract manufacturing and approximately 40,000 square
feet are dedicated to the Company's SpecTek memory products operation. The
balance of the Nampa facilities is dedicated to sales, technical support,
customer service, administrative functions and warehouse space.

The remainder of the Company's PC operation is located in a 60,000 square
foot leased facility in Minneapolis, Minnesota, dedicated primarily to sales,
technical support and administrative functions.

The Company also occupies an approximately 61,000 square foot leased
facility in Durham, North Carolina, with approximately 43,000 square feet
dedicated to contract manufacturing. In addition, the Company's contract
manufacturing operation occupies an 18,000 square foot leased facility in
Penang, Malaysia.

Other leased facilities include three factory outlets in Boise, Idaho, the
Salt Lake City, Utah area and the Minneapolis/St. Paul, Minnesota area and a
call center office located in Japan.

The Company is in the initial stage of a capacity enhancement program for
its PC operation which includes the planned expansion of its PC operation
facility in Nampa, Idaho. The new facility is expected to be approximately
300,000 square feet and to cost approximately $35 million.

S-52
<PAGE>

MANAGEMENT

OFFICERS AND DIRECTORS

The officers and directors of the Company and their ages as of January 22,
1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph M. Daltoso....... 34 Chairman of the Board, President and Chief Executive Officer
T. Erik Oaas............ 43 Vice President, Finance and Chief Financial Officer,
Director
Gregory D. Stevenson.... 35 Executive Vice President, Operations, Director
Robert F. Subia......... 34 Chairman of the Board, President and Chief Executive Officer
of Micron Custom Manufacturing Services, Inc. (a wholly-
owned subsidiary of the Company), Director
Jess Asla............... 35 Vice President, Operations of Micron Custom Manufacturing
Services, Inc. (a wholly-owned subsidiary of the Company)
George A. Haneke........ 49 Vice President, Chief Information Officer
Nelson L. Hanks......... 44 Vice President, Purchasing
Dean A. Klein........... 39 Vice President, Chief Technical Officer
Brian C. Klene.......... 39 Executive Vice President, Sales and Marketing
Steven H. Laney......... 36 Vice President, Corporate Communications
Gene P. Thomas, Jr. .... 36 Vice President, Marketing
Steven R. Appleton...... 36 Director
Jerry M. Hess........... 58 Director
Robert A. Lothrop....... 70 Director
John R. Simplot......... 88 Director
</TABLE>

Joseph M. Daltoso served as MTI's Memory Applications Group Manager from May
1990 until April 1992, when he was named President and a director of former
Micron Custom Manufacturing Services, Inc. then a wholly-owned subsidiary of
MTI ("MCMS"). In July 1992, Mr. Daltoso was named Chairman of the Board of
Directors of MCMS and, in August 1994, was also named Chief Executive Officer
of MCMS. At the effective time of the MEI Merger, Mr. Daltoso was appointed
Executive Vice President, Operations and a director of the Company. He was
named Chairman of the Board, President and Chief Executive Officer of the
Company on April 17, 1995.

T. Erik Oaas served as the Administration Manager of MTI's Memory
Applications Group from July 1988 to April 1992, and as the Administration
Manager of MCMS from April 1992 until July 1992, when he was named Vice
President, Finance and Treasurer, and a director of MCMS. At the effective
time of the MEI Merger, Mr. Oaas was appointed Vice President, Finance and
Chief Financial Officer, and a director of the Company.

Gregory D. Stevenson served as MTI's Partials Business Unit Manager from
April 1990 until April 1992. Mr. Stevenson joined MCMS as Component Recovery
Business Unit Manager. In July 1992, he was appointed Vice President,
Component Recovery of MCMS and in September 1992, was also appointed a
director of MCMS. In August 1993, Mr. Stevenson was appointed Vice President,
Operations of MCMS. At the effective time of the MEI Merger, Mr. Stevenson was
appointed Vice President, Nampa Operations and served in that position until
July 1995 when he was appointed Executive Vice President, Operations and a
director of the Company.

Robert F. Subia served as a Regional Sales Manager for MTI from 1989 until
February 1993. In February 1993, Mr. Subia joined MCMS as Director of Sales
and held this position until August 1994, when he was appointed Vice
President, Sales. On April 17, 1995, Mr. Subia was appointed Chairman,
President and CEO of Micron Custom Manufacturing Services, Inc., a wholly-
owned subsidiary of the Company ("CMS"). Mr. Subia was appointed a director of
the Company in October 1995.

S-53
<PAGE>

Jess Asla served as the Process Engineer Manager for MTI's Memory
Applications Group from 1988 until April 1992, and for MCMS from April 1992
until July 1994, when he was named Director of Engineering for MCMS. On April
17, 1995, Mr. Asla was appointed Vice President, Operations of CMS.

George A. Haneke joined MTI in May 1988 and was named Accounting Manager in
1992. Mr. Haneke joined Micron Computer, Inc. as its Vice President, Finance,
Treasurer and Chief Financial Officer in September 1993 and served in this
position until the effective time of the MEI Merger. At the effective time of
the MEI Merger, Mr. Haneke was appointed Vice President, Chief Information
Officer of the Company.

Nelson L. Hanks served as a consultant for MTI from 1989 to 1991. In 1991,
Mr. Hanks was named Chief Executive Officer of Micron Europe Limited, a
wholly-owned subsidiary of MTI, and served in this position until 1993. From
1993 until the effective time of the MEI Merger, Mr. Hanks served as Special
Projects Manager for MTI. At the effective time of the MEI Merger, Mr. Hanks
was appointed Vice President, Purchasing of the Company.

Dean A. Klein was a co-founder of and also served as President of PC Tech,
Inc., a wholly-owned subsidiary of the Company, from its inception in 1984.
After the acquisition of PC Tech, Inc. by the Company in February 1992, Mr.
Klein served as Vice President, Research and Development of the Company and
President of PC Tech, Inc. In February 1996, Mr. Klein was named Vice
President, Chief Technical Officer of the Company.

Brian C. Klene joined MTI in January 1989 as Director, Sales and Marketing
of the Memory Applications Group and served in that position until July 1990
when he was named Regional Sales Manager for MTI. He served in that position
until January 1991 when he was named National Sales Manager of MTI. In July
1995, Mr. Klene joined the Company as Executive Vice President, Sales and
Marketing.

Steven H. Laney served as MTI's Custom Manufacturing Marketing Manager from
1991 until April 1992 and as Marketing Manager for MCMS from April 1992 until
January 1994 when he was appointed Director of Marketing for MCMS. He served
in this position until the effective time of the MEI Merger when he was named
Director of Investor Relations of the Company. In October 1996, Mr. Laney was
named Vice President, Corporate Communications of the Company.

Gene P. Thomas, Jr. served in sales managerial roles with Polaroid
Corporation and CompuAdd Computer Corp. and was appointed Director of
Marketing for CompuAdd in 1993. Mr. Thomas joined Micron Computer, Inc. as
Director of Sales in March 1993 and was appointed Vice President, Sales and
Marketing in December 1993. At the effective time of the MEI Merger, Mr.
Thomas was appointed Vice President, Micron Computer Sales and Marketing, and
on July 31, 1995, was named Vice President, Marketing of the Company.

Steven R. Appleton joined MTI in February 1983 and has served in various
capacities with MTI and its subsidiaries, including overseeing MTI's
semiconductor operations as President and Chief Executive Officer of Micron
Semiconductor, Inc., then a wholly-owned subsidiary of MTI, from July 1992 to
November 1994. Except for a nine day period in January 1996, since May 1994
Mr. Appleton has served as a member of MTI's Board of Directors, and since
September 1994 Mr. Appleton has served as the Chief Executive Officer,
President and Chairman of the Board of Directors of MTI.

Jerry M. Hess has served as Chairman and Chief Executive Officer of J.M.
Hess Construction Company, Inc. since 1959. Mr. Hess has served on MTI's Board
of Directors since 1994. At the effective time of the MEI Merger, Mr. Hess was
appointed a director of the Company.

S-54
<PAGE>

Robert A. Lothrop served as the Senior Vice President of the J.R. Simplot
Company, a food processing, fertilizer, and agricultural chemicals
manufacturing company, from January 1986 until his retirement in January 1991.
Mr. Lothrop was elected to MTI's Board of Directors in 1986. In 1992, he was
elected to the Board of Directors of Micron Semiconductor, Inc., then a
wholly-owned subsidiary of MTI, and resigned as a director of MTI. Mr. Lothrop
was re-elected to MTI's Board of Directors in 1994. At the effective time of
the MEI Merger, Mr. Lothrop was appointed a director of the Company.

John R. Simplot founded and served as Chairman of the Board of Directors of
the J.R. Simplot Company prior to his retirement in April 1994. Mr. Simplot
currently serves as Chairman Emeritus of the J.R. Simplot Company. Mr. Simplot
has served on MTI's Board of Directors since 1980. At the effective time of
the MEI Merger, Mr. Simplot was appointed a director of the Company.

S-55
<PAGE>

CERTAIN RELATIONSHIPS WITH MICRON TECHNOLOGY, INC.
GENERAL

MTI incorporated Micron Computer, Inc. ("MCI") in August 1991 to enter the
personal computer business. In exchange for an initial capital investment of
$79,000, MCI issued 962,500 shares of its Class A Common Stock to MTI.

As part of a corporate restructuring, MTI formed the former Micron Custom
Manufacturing Services, Inc. ("MCMS") and entered into a series of agreements
with MCMS in April and May 1992. Pursuant to these agreements, MTI transferred
the assets and liabilities related to its contract manufacturing and component
recovery operations to MCMS in exchange for 1,591,304 shares of MCMS Common
Stock and promissory notes in the aggregate amount of approximately $9.6
million (the "MCMS Notes"). The MCMS Notes were repaid in full in 1996.

On April 7, 1995, MCI and MCMS merged with and into ZEOS International, Ltd.
("ZEOS"), and the surviving corporation's name was changed to "Micron
Electronics, Inc." (the "MEI Merger"). As of November 28, 1996, MTI owned
approximately 79% of the outstanding shares of the Company's Common Stock, and
after this offering MTI will own approximately 66% of the outstanding shares
of the Company's Common Stock. Accordingly, MTI has voting power sufficient to
elect the Company's entire Board of Directors and thereby has effective
control over the management and affairs of the Company. Moreover, MTI and the
Company currently share four common directors. See "Risk Factors--General--
Control by MTI."

VOTING AGREEMENT

MTI and MEI are parties to a voting agreement dated October 30, 1994 (the
"Voting Agreement"). Pursuant to the Voting Agreement, MTI has agreed that MTI
will not, nor will it permit any of its affiliates to, engage in any
transaction of any kind or nature with the Company unless such transaction is
upon terms which are not less favorable to the Company than would be available
in similar transactions with unrelated persons. The Voting Agreement will
terminate on April 7, 1998.

SUPPLY OF NONSTANDARD AND FULL SPECIFICATION RAM COMPONENTS

In the first quarter of fiscal 1997 and 1996, 1995 and 1994, MTI supplied
approximately 71%, 61%, 89% and 98%, respectively, of the nonstandard RAM
components which were used in the Company's SpecTek memory products operation.
Such supply was made pursuant to the Revenue Sharing Agreement between MTI and
the Company. MTI and the Company have entered into a Component Recovery
Agreement dated as of August 14, 1996 and effective as of the beginning of
fiscal 1997 for a three-year term (the "Component Recovery Agreement"), which
replaced the Revenue Sharing Agreement. Pursuant to the Component Recovery
Agreement, MTI is required to provide its nonstandard RAM components
exclusively to the Company, and the Company is generally required to pay to
MTI an amount equal to one-half of the pre-tax income realized from the sale
of reduced specification RAM components received from MTI. There can be no
assurance that MTI will continue to supply nonstandard RAM components to the
Company following termination of the Component Recovery Agreement or that MTI
will continue to produce nonstandard RAM components for use by the Company
during the term of the Component Recovery Agreement. See "Risk Factors--
SpecTek Memory Products Operation--Dependence on Component Recovery Agreement
with MTI" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Historically, the Company has purchased a majority of the full specification
RAM components used in its operations from MTI on market terms. Specifically,
in the first quarter of fiscal 1997 and in 1996 and 1995, the Company
purchased approximately 40%, 37% and 53%, respectively, of its full
specification RAM components from MTI. Purchases of full specification RAM
components are

S-56
<PAGE>

made by the Company from MTI on a purchase order basis, and no long-term
agreement exists between MTI and the Company for the supply of such
components.

For the first quarter of fiscal 1997 and in 1996, 1995 and 1994, the Company
paid MTI $5.8 million, $49.6 million, $72.9 million and $42.7 million,
respectively, for nonstandard RAM components and $18.4 million, $198.8
million, $177.4 million and $82.1 million, respectively, for full
specification RAM components.

MANUFACTURING SERVICES AND SALES OF PCS

The Company is also dependent on MTI as a contract manufacturing customer,
although there is no long-term agreement for MTI to purchase such services
from the Company. For the first quarter of fiscal 1997 and in 1996, 1995 and
1994, contract manufacturing revenues from MTI were $4.4 million, $41.6
million, $28.1 million and $12.4 million, respectively. The Company's sales of
PC systems to MTI for the first quarter of fiscal 1997 and in 1996, 1995 and
1994 were $342,000, $5.0 million, $4.3 million and $2.3 million, respectively.

ADMINISTRATIVE SERVICES

In January 1995, the Company entered into a services agreement with MTI (the
"Services Agreement"), pursuant to which MTI performs certain services for the
Company, including information systems, payroll, employee benefits
administration, investor relations, risk management, patent, legal support and
sales and marketing support. The Services Agreement is automatically renewed
for one-year periods unless terminated by either party and charges for
services provided are negotiated on a semi-annual basis. The Company paid MTI
approximately $278,000, $1.7 million, $917,000 and $554,000, in the first
quarter of fiscal 1997 and in 1996, 1995 and 1994, respectively, for services
performed pursuant to the Services Agreement or substantially similar
arrangements preceding such agreements.

INSURANCE

The Company purchases and maintains corporate insurance through the
Corporate Risk Management Department of MTI. This service is part of the
overall risk management services performed on the Company's behalf in
accordance with the Services Agreement. The premiums and fees associated with
the corporate insurance placement are allocated among MTI entities, including
the Company, on the basis of either a risk level indicator which varies by
type of insurance coverage or actual cost of insurance where determinable. The
Company benefits financially from this arrangement and may continue to do so
as long as it remains a majority-owned subsidiary of MTI.

The Company is insured under most of the same insurance contracts that
compose the MTI corporate property and casualty insurance program.
Additionally, the Company maintains directors and officers liability insurance
through MTI.

OTHER TRANSACTIONS

During the first quarter of fiscal 1997 and 1996, 1995 and 1994, the Company
purchased manufacturing equipment and land from MTI totaling approximately
$146,000, $574,000, $5.6 million and $2.8 million, respectively, and sold
equipment in 1996 and 1994 totaling $9,000 and $506,000, respectively, to MTI
and certain MTI subsidiaries other than the Company.

CONSOLIDATED TAX RETURNS AND TAX SHARING AGREEMENTS

MTI files consolidated federal income tax returns under the Internal Revenue
Code of 1986, as amended (the "Code"), including affiliates owned 80% or more
by MTI. MTI also files certain combined state income tax returns which include
certain of MTI's affiliates, including the Company. Prior to June

S-57
<PAGE>

1996, the amount of the Company's federal income taxes payable was determined
pursuant to a tax allocation agreement between the Company and MTI. In June
1996, MTI's ownership of the Company became less than 80% and, as a result,
MTI's federal income tax return for 1996 will include the Company's taxable
income and deductions only through May 1996. Under the provisions of the Code,
the Company is required to file a separate federal income tax return beginning
on the date MTI's ownership became less than 80%.

REVOLVING CREDIT AGREEMENT

MTI and the Company have entered into a Revolving Credit Agreement dated as
of October 5, 1995, pursuant to which MTI has agreed to make available to the
Company a line of credit in the amount of up to $80 million. Advances under
the revolving credit facility are based on the Company's tangible net worth.
As of November 28, 1996, the Company was eligible to borrow approximately
$54.6 million under the facility but had no borrowings outstanding. MTI can
terminate such facility upon 24 months' notice, while the Company can
terminate upon 20 days' notice.

LICENSING

The Company, as a majority-owned subsidiary of MTI, benefits from certain
license agreements between MTI and certain third parties. The Company makes
payments to MTI relating to certain of such arrangements. The Company's rights
under such agreements may terminate in the event that the Company is no longer
a majority-owned subsidiary of MTI. In the event of any such termination, the
inability of the Company independently to obtain such rights on similar terms
could have a material adverse effect on the Company's business and results of
operations.

In addition, MTI has allowed and is currently allowing the Company to use
certain of MTI's trademarks and patents, including the Micron brand name. Such
use by the Company has not been documented by a written license agreement.
There can be no assurance that the Company will continue to be able to use
such trademarks and patents in the future, particularly if the Company ceases
to be a majority-owned subsidiary of MTI. The Company's inability to use such
trademarks and patents in the future could have a material adverse effect on
the Company's business and results of operations.

SELLING SHAREHOLDERS

The table below sets forth certain information with respect to the Selling
Shareholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AS OF SHARES BENEFICIALLY
JANUARY 20, 1997 OWNED AFTER OFFERING
------------------------- -------------------------
PERCENT SHARES TO PERCENT
NAME OF BENEFICIAL OWNER NUMBER OF OUTSTANDING BE SOLD NUMBER OF OUTSTANDING
- ------------------------ ---------- -------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Micron Technology, Inc.
(1).................... 73,312,863 79.2% 10,405,000 62,907,863 66%
T. Erik Oaas (2)........ 635,357 * 95,000 540,357 *
</TABLE>
- --------
*Less than one percent (1%).

(1) Four directors of the Company are currently also directors of MTI.

(2) Mr. Oaas is the Vice President, Finance, Chief Financial Officer and a
director of the Company.

S-58
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters
has severally agreed to purchase from the Company and the Selling
Shareholders, the respective number of shares of Common Stock set forth
opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------------
<S> <C>
Goldman, Sachs & Co.............................................
Deutsche Morgan Grenfell Inc. ..................................
Montgomery Securities...........................................
Robertson, Stephens & Company LLC...............................
------------
Total......................................................... 13,500,000
============
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.

The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $
per share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.

The Company and a Selling Shareholder have granted the Underwriters an
option exercisable for 30 days after the date of this Prospectus Supplement to
purchase up to an aggregate of 2,025,000 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise their
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the 13,500,000 shares of Common Stock offered.

The Company, certain officers and directors of the Company and the Selling
Shareholders have agreed that, during the period beginning from the date of
this Prospectus Supplement and continuing to and including the date 90 days
after the date of this Prospectus Supplement, they will not to offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans and purchase plans existing, or
on the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus Supplement) which are
substantially similar to the shares of Common Stock or which are convertible
or exchangeable into securities which are substantially similar to the shares
of Common Stock without the prior written consent of the Underwriters, except
for the shares of Common Stock offered in connection with the offering.

The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.

Deutsche Morgan Grenfell Inc. has, from time to time, rendered investment
banking advisory services to the Company with respect to possible strategic
and other relationships.

S-59
<PAGE>

LEGAL MATTERS

The validity of the shares offered hereby is being passed upon for the
Company and the Selling Shareholders by Wilson Sonsini Goodrich & Rosati, a
Professional Corporation, Palo Alto, California, and certain legal matters
will be passed upon for the Underwriters by Shearman & Sterling, San
Francisco, California.

S-60
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Statements of Operations for the Three Months Ended November 28, 1996 and
November 30, 1995, and the Fiscal Years Ended August 29, 1996, August 31,
1995 and September 1, 1994 .............................................. F-3
Balance Sheets as of November 28, 1996, August 29, 1996 and August 31,
1995 .................................................................... F-4
Statements of Shareholders' Equity for the Three Months Ended November 28,
1996 and November 30, 1995, and the Fiscal Years Ended August 29, 1996,
August 31, 1995 and September 1, 1994.................................... F-5
Statements of Cash Flows for the Three Months Ended November 28, 1996 and
November 30, 1995, and the Fiscal Years Ended August 29, 1996, August 31,
1995 and September 1, 1994............................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

The Shareholders and Board of Directors Micron Electronics, Inc.

We have audited the accompanying balance sheets of Micron Electronics, Inc.
as of August 29, 1996 and August 31, 1995, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended August 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Micron Electronics, Inc.,
as of August 29, 1996 and August 31, 1995, and the results of their operations
and their cash flows for each of the three years in the period ended
August 29, 1996, in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

Boise, Idaho
September 19, 1996

F-2
<PAGE>

MICRON ELECTRONICS, INC.

STATEMENTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of the financial statements.

F-3
<PAGE>

MICRON ELECTRONICS, INC.

BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)

<TABLE>
<CAPTION>
AS OF
----------------------------------
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
A S S E T S
Cash and cash equivalents........................................ $122,394 $115,839 $ 69,406
Receivables...................................................... 156,166 176,547 128,744
Inventories...................................................... 117,289 69,863 92,709
Deferred income taxes............................................ 24,700 35,014 16,086
Other current assets............................................. 1,843 1,853 1,810
-------- -------- --------
Total current assets........................................... 422,392 399,116 308,755
Property, plant and equipment, net............................... 138,940 129,192 58,254
Goodwill, net.................................................... -- -- 12,612
Other assets..................................................... 902 1,625 3,095
-------- -------- --------
Total assets................................................... $562,234 $529,933 $382,716
======== ======== ========
L I A B I L I T I E S A N D S H A R E H O L D E R S ' E Q U I T Y
Accounts payable and accrued expenses............................ $245,567 $247,044 $177,437
Accrued licenses and royalties................................... 33,048 27,242 23,844
Current debt..................................................... 3,974 3,064 1,022
-------- -------- --------
Total current liabilities...................................... 282,589 277,350 202,303
Long-term debt................................................... 21,085 18,233 5,801
Deferred income taxes............................................ 2,374 2,436 --
Other liabilities................................................ 2,918 3,454 949
-------- -------- --------
Total liabilities.............................................. 308,966 301,473 209,053
-------- -------- --------
Commitments and contingencies
Common stock, $.01 par value, authorized 150.0 million shares;
issued and outstanding 92.5 million shares at November 28, 1996
and August 29, 1996 and 91.4 million shares at August 31, 1995.. 925 925 914
Additional capital............................................... 69,441 69,392 58,613
Retained earnings................................................ 182,906 158,143 114,136
Cumulative foreign currency translation adjustment............... (4) -- --
-------- -------- --------
Total shareholders' equity..................................... 253,268 228,460 173,663
-------- -------- --------
Total liabilities and shareholders' equity..................... $562,234 $529,933 $382,716
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-4
<PAGE>

MICRON ELECTRONICS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

(DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED
---------------- --------------------------------------------------
NOVEMBER 28, AUGUST 29, AUGUST 31, SEPTEMBER 1,
1996 1996 1995 1994
---------------- ---------------- ---------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------- ------ -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
MCI Class A:
Balance at beginning of
year................... 988 $ 79 198 $ 79
Stock split............. -- -- 790 --
Purchase and retirement
of stock............... (16) (1) -- --
Merger transaction...... (972) (78) -- --
------ -------- ----- -------
Balance at end of year.. -- $ -- 988 $ 79
====== ======== ===== =======
MCI Class B:
Balance at beginning of
year................... 470 $ 286 84 $ 88
Stock sold.............. 7 67 45 221
Stock split............. -- -- 341 --
Purchase and retirement
of stock............... (90) (55) -- (23)
Merger transaction...... (387) (298) -- --
------ -------- ----- -------
Balance at end of year.. -- $ -- 470 $ 286
====== ======== ===== =======
MCMS:
Balance at beginning of
year................... 1,849 $ 185 9 $ 1
Stock sold.............. -- -- 258 26
Stock split............. -- -- 1,582 158
Merger transaction...... (1,849) (185) -- --
------ -------- ----- -------
Balance at end of year.. -- $ -- 1,849 $ 185
====== ======== ===== =======
MEI:
Balance at beginning of
period................. 92,473 $ 925 91,431 $ 914 -- $ --
Stock sold.............. -- -- 136 1 -- --
Stock award............. -- -- 151 2 -- --
Purchase and retirement
of stock............... (29) -- (238) (2) (16) --
Stock options........... 7 -- 993 10 84 1
Merger transaction...... -- -- -- -- 91,363 913
------ -------- ------ -------- ------ --------
Balance at end of
period................. 92,451 $ 925 92,473 $ 925 91,431 $ 914
====== ======== ====== ======== ====== ========
Additional Capital
Balance at beginning of
period................. $ 69,392 $ 58,613 $ 14,662 $10,646
Stock sold.............. -- 1,283 -- 4,001
Stock award............. -- 1,298 -- --
Purchase and retirement
of stock............... (21) (156) (11) --
Stock split............. -- -- -- (158)
Stock options........... 23 997 464 --
Tax effect of stock
option and purchase
plans.................. 47 7,357 710 173
Merger transaction...... -- -- 42,788 --
-------- -------- -------- -------
Balance at end of
period................. $ 69,441 $ 69,392 $ 58,613 $14,662
======== ======== ======== =======
Retained Earnings
Balance at beginning of
period................. $158,143 $114,136 $ 52,957 $16,060
Purchase and retirement
of stock............... (49) (575) (824) (1)
Merger transaction...... -- -- (3,083) --
Net income.............. 24,812 44,582 65,086 36,898
-------- -------- -------- -------
Balance at end of
period................. $182,906 $158,143 $114,136 $52,957
======== ======== ======== =======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>

MICRON ELECTRONICS, INC.

STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
------------------------- ----------------------------------
NOVEMBER 28, NOVEMBER 30, AUGUST 29, AUGUST 31, SEPTEMBER 1,
1996 1995 1996 1995 1994
------------ ------------ ---------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net income............ $ 24,812 $16,615 $ 44,582 $ 65,086 $ 36,898
Adjustments to
reconcile net income
to net cash from
operating activities:
Depreciation.......... 7,291 4,096 20,718 11,057 4,635
Amortization.......... 61 1,319 1,508 2,101 31
Restructuring charge.. -- -- 29,200 -- --
Changes in assets and
liabilities, net of
effects of
restructuring charge
and merger
transaction:
Receivables.......... 20,381 (35,764) (48,478) (56,049) (29,490)
Inventories.......... (47,426) (36,563) 8,382 (34,052) (16,711)
Accounts payable and
accrued expenses.... 1,111 60,038 66,592 62,377 36,509
Accrued licenses and
royalties........... 5,806 1,064 9,165 14,411 568
Deferred income
taxes............... 10,252 (2,803) (14,382) (3,634) (794)
Other................ (628) 17 525 (942) (119)
-------- ------- -------- -------- --------
Net cash provided by
operating
activities......... 21,660 8,019 117,812 60,355 31,527
-------- ------- -------- -------- --------
Cash Flows from
Investing Activities:
Expenditures for
property, plant and
equipment............ (18,912) (8,076) (90,122) (39,585) (19,260)
Proceeds from sales of
property, plant and
equipment............ 92 396 6,354 528 787
Purchases of held-to-
maturity investment
securities........... -- -- -- (3,165) (2,164)
Proceeds from
maturities of
investment
securities........... -- -- -- 5,400 --
Cash acquired in
merger transaction... -- -- -- 14,060 --
Other................. -- (39) 21 (439) (63)
-------- ------- -------- -------- --------
Net cash used for
investing
activities......... (18,820) (7,719) (83,747) (23,201) (20,700)
-------- ------- -------- -------- --------
Cash Flows from
Financing Activities:
Proceeds from
borrowings........... 4,568 -- 42,770 -- --
Repayments of debt.... (806) (253) (31,969) (1,022) (1,669)
Proceeds from issuance
of common stock...... 23 334 2,300 398 4,248
Purchase and
retirement of stock.. (70) (258) (733) (891) (24)
Other................. -- -- -- (1,281) (18)
-------- ------- -------- -------- --------
Net cash provided by
(used for)
financing
activities......... 3,715 (177) 12,368 (2,796) 2,537
-------- ------- -------- -------- --------
Net increase in cash and
cash equivalents....... 6,555 123 46,433 34,358 13,364
Cash and cash
equivalents at
beginning of period.... 115,839 69,406 69,406 35,048 21,684
-------- ------- -------- -------- --------
Cash and cash
equivalents at end of
period................. $122,394 $69,529 $115,839 $ 69,406 $ 35,048
======== ======= ======== ======== ========
Supplemental
Disclosures:
Income taxes paid..... $ 15,030 $ 4,370 $ 36,076 $ 45,277 $ 21,889
Interest paid, net of
amounts capitalized.. 228 8 253 412 416
Noncash investing and
financing activities:
Reclassification of
accrued licenses and
royalties to long-
term debt........... -- -- 3,768 -- --
Assets acquired, net
of cash and
liabilities assumed,
in merger
transaction......... -- -- -- 25,998 --
Assets acquired in
exchange for debt... -- -- -- -- 1,468
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS

(TABULAR DOLLAR AMOUNTS IN THOUSANDS)
SIGNIFICANT ACCOUNTING POLICIES

BUSINESS: Micron Electronics, Inc. and its subsidiaries (collectively, "MEI"
or "the Company") develop, market, manufacture, sell and support a range of
memory intensive, high performance desktop and notebook PC systems and network
servers under the Micron brand name, and manufacture other electronic products
for a wide range of computing and digital applications. The Company markets and
sells its PC systems to individuals for home use, small to medium-sized
businesses and governmental and educational entities. MEI's wholly-owned
subsidiary, Micron Custom Manufacturing Services, Inc., is a contract
manufacturer specializing in the assembly of custom complex printed circuit
boards, memory modules and system level products. MEI's component recovery
operations recover, assemble, test, grade and market nonstandard random access
memory ("RAM") products not meeting full industry standard specifications. The
contract manufacturing and component recovery operations market and sell a
significant amount of products and services to original equipment manufacturers
in diverse areas of the electronics industry.

BASIS OF PRESENTATION: The financial statements include the accounts of
Micron Electronics, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. The Company's fiscal year is
the 52 or 53 week period ending on the Thursday closest to August 31. As of
August 29, 1996, the Company was approximately 79% owned by Micron Technology,
Inc. ("MTI" or "Parent").

In the opinion of management, the accompanying unaudited financial statements
as of and for the three months ended November 28, 1996 and November 30, 1995
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of the Company and their
results of operations and cash flows.

CERTAIN CONCENTRATIONS AND USE OF ESTIMATES: Certain components,
subassemblies and software included in the Company's PC systems are obtained
from sole suppliers or a limited number of suppliers. The Company relies, to a
certain extent, upon its suppliers' abilities to enhance existing products in a
timely and cost-effective manner, to develop new products to meet changing
customer needs and to respond to emerging standards and other technological
developments in the PC industry. The Company's reliance on a limited number of
suppliers involves several risks, including the possibility of shortages and/or
increases in costs of components and subassemblies, and the risk of reduced
control over delivery schedules.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities as of the date of the financial statements and the
reported amounts of revenues and expenses during the reported periods. Although
actual results could differ from those estimates, management believes its
estimates are reasonable.

REVENUE RECOGNITION: Revenue from product sales to customers is generally
recognized upon shipment. A provision for estimated sales returns is recorded
in the period in which the sales are recognized. The Company defers recognition
of sales to distributors with return privileges until the distributors have
sold the products.

EARNINGS PER SHARE: Earnings per share is computed using the weighted average
number of common and common equivalent shares outstanding. Common equivalent
shares result from the assumed exercise of outstanding stock options and affect
earnings per share when they have a dilutive effect. All historical per share
amounts have been restated to reflect stock splits and the effect of the merger
transaction (see "The MEI Merger").

F-7
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

FINANCIAL INSTRUMENTS: Cash equivalents include highly liquid short-term
investments with original maturities of three months or less, readily
convertible to known amounts of cash. The amounts reported as cash
equivalents, receivables, other assets, accounts payable and accrued expenses
and debt as of August 29, 1996 are considered by the Company to be reasonable
approximations of their fair values, based on market information available to
management as of August 29, 1996. The use of different market assumptions and
estimation methodologies could have a material effect on the estimated fair
value amounts. The reported fair values do not take into consideration
potential taxes or other expenses that would be incurred in an actual
settlement.

Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of cash and equivalents, investment
securities and trade accounts receivable. The Company invests its cash in
credit instruments of highly rated financial institutions and performs
periodic evaluations of the credit standing of these financial institutions.
The Company, by policy, limits the concentration of credit exposure by
restricting investments with any single obligor, instrument, or geographic
area. A concentration of credit risk may exist with respect to trade
receivables, as many of the Company's customers are affiliated with the
computer, telecommunications and office automation industries. The Company has
a large number of customers on which it performs ongoing credit evaluations
and generally does not require collateral from its customers. Historically,
the Company has not experienced significant losses related to receivables from
individual customers or groups of customers in any particular industry or
geographic area.

INVENTORIES: Inventories are stated at the lower of average cost or market.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of 5 to 30 years for buildings and 2 to 5 years for
equipment.

PRODUCT AND PROCESS TECHNOLOGY: Costs related to the conceptual formulation
and design of products and processes are expensed as research and development.
Costs incurred to establish patents and acquire product and process technology
are capitalized. Capitalized costs are amortized using the straight-line
method over the shorter of the estimated useful life of the technology, the
patent term, or the agreement, ranging up to 10 years.

ROYALTIES: The Company has royalty-bearing license agreements that allow it
to sell certain hardware and software and to use certain patented technology.
Royalty costs are accrued and included in cost of goods sold when the sale is
recognized.

ADVERTISING: Advertising costs are charged to operations as incurred.

RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Company has not
elected early adoption of SFAS 121 and intends to adopt the provisions of SFAS
121 in fiscal 1997. Adoption of SFAS 121 is not expected to have a material
effect on the Company's financial position or results of operations.

In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." The Company has not elected early adoption of SFAS 123 and
intends to adopt SFAS 123 in fiscal 1997. As permitted under SFAS 123, the
Company intends to continue to measure compensation expense for its stock-
based employee compensation plans using the intrinsic value method prescribed
by

F-8
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and provide pro forma disclosure of net income and earnings per
share as if a fair value-based method had been applied in measuring
compensation expense. As a result, adoption of SFAS 123 is not expected to
have a material effect on the Company's financial position or results of
operations.

RECLASSIFICATIONS: Certain reclassifications have been made, none of which
affected results of operations, to present the financial statements on a
consistent basis.

THE MEI MERGER

On April 7, 1995, Micron Computer, Inc. ("MCI") and the former Micron Custom
Manufacturing Services, Inc. ("MCMS"), then subsidiaries of MTI, merged with
and into ZEOS International, Ltd. ("ZEOS") (the "MEI Merger"). Pursuant to the
terms of the MEI Merger, ZEOS issued approximately 82.5 million shares of its
common stock in exchange for all of the outstanding shares of MCI and MCMS,
and the name of the surviving corporation was changed to Micron Electronics,
Inc. The MEI Merger resulted in a change of control of approximately 89% of
ZEOS wherein, assuming exercise of all options outstanding at the time of the
MEI Merger, (a) MTI owned an approximate 79% interest in the Company, and (b)
the other shareholders of MCI and MCMS owned an approximate 10% interest in
the Company. The MEI Merger was accounted for as a purchase of ZEOS by MCI and
MCMS. A new basis of accounting was established for the assets and liabilities
of ZEOS to the extent of the change of control. The new basis reflects the
allocation of the approximate $39.1 million basis to the ZEOS assets and
liabilities on the basis of their fair values. Goodwill of approximately $14.6
million was recorded to the extent the purchase price exceeded the fair value
of the identifiable net assets for which a change of control occurred.
Goodwill was being amortized on a straight line basis over three years and
accumulated amortization as of August 31, 1995 was approximately $2.0 million.
In the second quarter of fiscal 1996, the remaining goodwill was written off
in connection with a restructuring charge recorded by the Company (see
"Restructuring Charge").

The Company's fiscal year is a 52 or 53 week period ending on the Thursday
closest to August 31, which was the fiscal year of MCI and MCMS. Subsequent to
the MEI Merger, the financial statements of the Company reflect the
consolidated results of operations, financial position and cash flows of MEI,
based on the new basis of accounting for the assets and liabilities of ZEOS
and the historical cost bases for the assets and liabilities of MCI and MCMS.
Prior to the MEI Merger, the financial statements of the Company include only
the combined results of operations, financial position and cash flows of MCI
and MCMS.

RESTRUCTURING CHARGE

In February 1996, the Company adopted a plan to discontinue the manufacture
and sale of ZEOS brand PC systems and to close the related manufacturing
operations in Minneapolis, Minnesota. As a result, the Company recorded a
restructuring charge of $29.5 million in the second quarter of fiscal 1996. In
the fourth quarter of fiscal 1996, the Company reduced the restructuring
charge by $0.3 million after concluding its restructuring activities had been
completed or were adequately provided for in the remaining restructuring
accrual. Restructuring costs of $28.9 million incurred through August 29, 1996
include approximately $14.5 million related to the disposition of inventory;
$11.4 million related to the write-off of goodwill which resulted from the MEI
Merger; $1.1 million related to other asset write-downs; $0.6 million related
to personnel costs for approximately 250 employees engaged in manufacturing,
purchasing, customer service, finance and administrative functions; and $1.3
million related to other exit costs.

F-9
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

INVESTMENT SECURITIES

<TABLE>
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Held-to-maturity investment securities,
at amortized cost:
Commercial paper..................... $ 34,097 $ 30,437 $ 19,421
State and local government........... 40,850 24,650 12,050
Bankers' acceptances................. 2,988 11,976 5,966
Certificates of deposit.............. -- -- 1,030
U.S. Government agency............... 28,493 7,813 1,000
--------- -------- --------
106,428 74,876 39,467
Less cash equivalents.................. (106,428) (74,876) (39,467)
--------- -------- --------
Liquid investments..................... $ -- $ -- $ --
========= ======== ========
</TABLE>

RECEIVABLES

<TABLE>
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables........................ $151,530 $171,820 $126,040
Receivables from affiliates, net......... 2,458 2,526 8,379
Income taxes recoverable from parent
corporation............................. 4,380 5,147 --
Other.................................... 6,497 7,363 1,070
Allowance for doubtful accounts.......... (6,828) (8,221) (5,458)
Allowance for returns and discounts...... (1,871) (2,088) (1,287)
-------- -------- --------
$156,166 $176,547 $128,744
======== ======== ========

INVENTORIES
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials and supplies............... $ 84,503 $ 45,949 $ 65,684
Work in progress......................... 15,681 13,239 19,367
Finished goods........................... 17,105 10,675 7,658
-------- -------- --------
$117,289 $ 69,863 $ 92,709
======== ======== ========
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................... $ 1,639 $ 1,639 $ 987
Buildings................................ 39,373 17,647 15,643
Equipment................................ 141,449 120,393 71,502
Construction in progress................. 9,308 35,398 7,259
-------- -------- -------
191,769 175,077 95,391
Less accumulated depreciation and
amortization............................ (52,829) (45,885) (37,137)
-------- -------- -------
$138,940 $129,192 $58,254
======== ======== =======
</TABLE>

F-10
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

During the third quarter of fiscal 1996, the Company purchased approximately
30 acres of land adjacent to its PC manufacturing operations from a director
of the Company and a third party for approximately $575,000.

In December 1993, the Company exchanged approximately 13 acres of land owned
by the Company for 13 acres of land owned by a director. Additionally, the
Company purchased approximately 17 acres of land for approximately $258,000
and obtained an option to purchase approximately 40 additional acres of real
property adjacent to its Nampa facility from this director.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable................... $182,381 $157,350 $ 99,065
Payable to affiliates.................... 14,228 25,829 53,750
Salaries, wages and benefits............. 14,737 16,168 11,086
Income taxes payable..................... 4,682 14,526 --
Income taxes payable to parent
corporation............................. 1,219 1,300 4,686
Equipment contracts payable.............. 7,918 7,955 1,926
Accrued warranty......................... 6,717 7,905 2,758
Other.................................... 13,685 16,011 4,166
-------- -------- --------
$245,567 $247,044 $177,437
======== ======== ========
</TABLE>

DEBT

<TABLE>
<CAPTION>
NOVEMBER 28, AUGUST 29, AUGUST 31,
1996 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable in periodic installments
through September, 2001 weighted average
interest rate of 7.57% at November 28,
1996 and 7.52% at August 29, 1996....... $25,028 $21,261 $ --
Notes payable to parent corporation...... -- -- 6,672
Other.................................... 31 36 151
------- ------- -------
25,059 21,297 6,823
Less current portion..................... (3,974) (3,064) (1,022)
------- ------- -------
$21,085 $18,233 $ 5,801
======= ======= =======
</TABLE>

The Company has an unsecured revolving credit facility with MTI providing
for borrowings of up to $80 million, based on the Company's tangible net
worth. As of August 29, 1996, the Company was eligible to borrow approximately
$52 million under the facility, but had no borrowings outstanding. As of
November 28, 1996, the Company was eligible to borrow approximately $55
million under the facility, but had no borrowings outstanding.

The Company has an unsecured credit agreement with financial institutions
providing for borrowings of up to $40 million, based on the amount of the
Company's eligible receivables. As of August 29, 1996, the Company was
eligible to borrow $40 million pursuant to the agreement, but had no
borrowings outstanding. As of November 28, 1996, the Company was eligible to
borrow $40 million

F-11
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
pursuant to the agreement, but had no borrowings outstanding. Under the
agreement, the Company is subject to certain financial and other covenants
including certain financial ratios and limitations on the amount of dividends
declared or paid by the Company.

Certain of the Company's notes payable are collateralized by equipment with
a total cost of approximately $17,583,000 and accumulated depreciation of
approximately $863,000 as of August 29, 1996 and a total cost of approximately
$22,151,000 and accumulated depreciation of approximately $1,914,000 as of
November 28, 1996.

Maturities of debt are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR NOTES PAYABLE OTHER
----------- ------------- -----
<S> <C> <C>
1997..................................................... $ 3,044 $21
1998..................................................... 5,175 17
1999..................................................... 5,443 --
2000..................................................... 3,849 --
2001..................................................... 3,750 --
Less interest.......................................... -- (2)
------- ---
$21,261 $36
======= ===
</TABLE>

Interest income is net of $176,000, $426,000 and $430,000 of interest
expense in 1996, 1995 and 1994, respectively. Construction period interest of
$326,000, $119,000 and $34,000 was capitalized in 1996, 1995 and 1994,
respectively. Interest income is net of $296,000 and $3,000 of interest
expense in the three months ended November 28, 1996 and November 30, 1995,
respectively, and construction period interest of $100,000 and $122,000,
respectively, was capitalized.

STOCK PURCHASE AND INCENTIVE PLANS

The Company's 1995 Stock Option Plan provides for the granting of incentive
and nonstatutory stock options. As of August 29, 1996, there were 5,000,000
shares of common stock reserved for issuance under the plan. Exercise prices
of the incentive and nonstatutory stock options have been 100% and 85%,
respectively, of the fair market value of the Company's common stock on the
date of grant. Options are granted subject to terms and conditions determined
by the Board of Directors, and generally are exercisable in increments of 20%
for each year of employment beginning one year from date of grant and
generally expire six years from date of grant. As of August 29, 1996, there
were options outstanding to purchase approximately 1,859,000 shares of common
stock at prices ranging from $8.89 to $23.83 of which options to purchase
approximately 121,000 shares of common stock were exercisable.

The Company's 1995 Employee Stock Purchase Plan allows eligible employees of
the Company to purchase shares of common stock through payroll deductions. The
shares can be purchased for 85% of the lower of the beginning or ending fair
market value of each six month offering period and are restricted from resale
for a period of one year from the date of purchase. Purchases are limited to
20% of an employee's eligible compensation. A total of 2,500,000 shares are
reserved for issuance under the plan, of which approximately 136,000 shares
had been issued as of August 29, 1996.

Granting of options under ZEOS' stock option plan was suspended after the
MEI Merger. During 1996 and subsequent to the MEI Merger in 1995, options to
purchase approximately 993,000 and 84,000 shares of the Company's common
stock, respectively, were exercised at per share prices

F-12
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ranging from $0.33 to $17.00 and $2.63 to $8.50, respectively. As of August
29, 1996, options to purchase approximately 49,000 shares of the Company's
common stock were outstanding under this plan, all of which were exercisable
at per share prices ranging from $2.63 to $10.75.

In December 1994, ZEOS awarded shares of its common stock to certain of its
employees subject to their continued employment as of January 1, 1996.
Compensation expense was recognized over the vesting period based upon the
fair market value of the stock at the date of award. To satisfy this award,
the Company issued approximately 151,000 shares of the Company's common stock
in January 1996.

The Company has two 401(k) profit-sharing plans, the RAM Plan and the ZEOS
Plan, in which employees participate. Under the RAM Plan, which is
administered by MTI, employees may contribute from 2% to 16% of eligible pay
to various savings alternatives. In 1994, the RAM Plan was modified to provide
for an annual match by the Company of the first $1,500 of eligible employee
contributions and for additional contributions by the Company based on the
Company's financial performance. Effective September 1, 1995, the ZEOS Plan
was amended to match the provisions of the RAM Plan. The Company's expense
pursuant to these plans was approximately $3,051,000, $1,062,000 and $450,000
in 1996, 1995 and 1994, respectively. The Company's expense pursuant to these
plans was approximately $751,000 and $555,000 in the three months ended
November 28, 1996 and November 30, 1995.

TRANSACTIONS WITH AFFILIATES

Revenue sharing expense is a component of cost of goods sold and reflects
expenses incurred under a revenue sharing agreement, wherein, for the
nonstandard semiconductor components supplied by MTI, the Company paid MTI an
amount equal to one-half of net sales to third parties and one-half of the
transfer price for products identified for internal use by the Company.

During the fourth quarter of 1996, the Company entered into a new component
recovery agreement with MTI, effective August 30, 1996 and expiring August
1999. The new agreement replaces the revenue sharing agreement. Pursuant to
the component recovery agreement, the Company generally will pay to MTI an
amount equal to one-half of the operating income from sales of nonstandard
semiconductor components supplied by MTI.

F-13
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

COMMITMENTS

As of August 29, 1996, the Company had commitments of $5.5 million for
equipment purchases and $2.0 million for construction of buildings. As of
November 28, 1996, the Company had commitments of $11.4 million for equipment
purchases and $0.8 million for construction of buildings. In addition, the
Company is required to make minimum royalty payments under certain agreements
and periodically enters into minimum purchase commitments with certain
suppliers.

The Company leases its office and production facilities in North Carolina,
its office facilities in Minneapolis, Minnesota and certain other property and
equipment, under operating lease agreements expiring through 2001, with
renewals thereafter at the option of the Company. Future minimum lease
payments total approximately $7,870,000 and are as follows: $1,999,000 in
1997, $1,989,000 in 1998, $1,770,000 in 1999, $1,646,000 in 2000 and $466,000
in 2001.

Rental expense was approximately $2,405,000, $1,026,000 and $277,000 in
1996, 1995 and 1994, respectively. Rental expense was approximately $653,000
and $473,000 in the three months ended November 28, 1996 and November 30,
1995, respectively.

INCOME TAXES

The Company was included in the consolidated U.S. federal income tax return
of its Parent until June 1996, at which time the Company became a separate
taxpayer. For all periods presented, the provision for income taxes is
computed as if the Company were a separate taxpayer, and consists of the
following:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
AUGUST 29, AUGUST 31, SEPTEMBER 1,
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
Current:
U.S. federal............................... $44,128 $38,548 $19,586
State...................................... 5,309 7,691 4,378
------- ------- -------
49,437 46,239 23,964
------- ------- -------
Deferred:
U.S. federal............................... (11,923) (570) (83)
State...................................... (2,459) (2,279) (382)
------- ------- -------
(14,382) (2,849) (465)
------- ------- -------
Income tax provision......................... $35,055 $43,390 $23,499
======= ======= =======
</TABLE>

The effective income tax rate was 39.5% for the three months ended November
28, 1996, principally reflecting the federal statutory rate and the net effect
of state taxes. The Company's effective income tax rate of 40.0% for the
corresponding period in 1996 principally reflected the federal statutory rate,
the net effect of state taxes and the effect of goodwill amortization.

The tax benefit associated with nonstatutory stock options and disqualifying
dispositions by employees of shares issued under the Company's and Parent's
stock plans reduced taxes payable by $7,357,000, $710,000 and $173,000 for
1996, 1995 and 1994, respectively. Such benefits are credited to additional
capital.

F-14
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation between the income tax provision and income tax computed
using the federal statutory rate follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
AUGUST 29, AUGUST 31, SEPTEMBER 1,
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
U.S. federal income tax at statutory rate.... $27,873 $37,967 $21,140
State taxes, net of federal benefit.......... 2,254 4,592 2,664
Goodwill..................................... 4,935 776 --
Other........................................ (7) 55 (305)
------- ------- -------
$35,055 $43,390 $23,499
======= ======= =======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes at enacted tax rates.
Deferred income tax assets totaled approximately $38,903,000 and $22,360,000
and liabilities totaled approximately $6,325,000 and $4,164,000 at August 29,
1996 and August 31, 1995, respectively. The tax effects of temporary
differences and carryforwards which give rise to the net deferred tax assets
are as follows:

<TABLE>
<CAPTION>
AS OF
---------------------
AUGUST 29, AUGUST 31,
1996 1995
---------- ----------
<S> <C> <C>
Current deferred tax asset:
Receivables.......................................... $ 3,217 $ 2,161
Inventories.......................................... 4,155 4,462
Accrued compensation................................. 4,928 812
Accrued licenses and royalties....................... 9,107 4,029
Net operating loss carryforwards..................... 2,619 2,828
Accrued expenses..................................... 7,472 1,367
Other................................................ 3,516 427
------- -------
35,014 16,086
------- -------
Noncurrent deferred tax asset (liability):
Property, plant and equipment........................ (2,093) (1,298)
Net operating loss carryforwards..................... 333 2,954
Accrued licenses and royalties....................... 1,956 --
Other................................................ (2,632) 454
------- -------
(2,436) 2,110
------- -------
Total net deferred tax asset......................... $32,578 $18,196
======= =======
</TABLE>

Deferred tax assets of approximately $15,247,000 were recorded in 1995 in
connection with the MEI Merger. Net operating loss carryforwards as of August
29, 1996 of approximately $7,787,000, available to offset future taxable
income, will begin to expire in 2006.

EXPORT SALES

Export sales were approximately $181,371,000, $76,686,000 and $25,957,000 in
1996, 1995 and 1994, respectively. Export sales were approximately $22,098,000
and $41,349,000 in the three months ended November 28, 1996 and November 30,
1995, respectively.

F-15
<PAGE>

MICRON ELECTRONICS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

CONTINGENCIES

Periodically, the Company is made aware that technology used by the Company
may infringe on product or process technology rights held by others. The
Company has accrued a liability and charged operations for the estimated costs
of settlement or adjudication of asserted and unasserted claims for alleged
infringement prior to the balance sheet date. Resolution of these claims could
have a material adverse effect on future results of operations and could
require changes in the Company's products or processes.

The Company is currently a party to various other legal actions arising out
of the normal course of business, none of which is expected to have a material
effect on the Company's financial position or results of operations.

F-16
<PAGE>

MICRON ELECTRONICS, INC.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Net sales................................. $457,401 $412,322 $456,619 $438,578
Gross margin.............................. 94,892 58,571 49,010 58,712
Net income (loss)......................... 26,448 14,075 (12,556) 16,615
Earnings (loss) per share................. 0.29 0.15 (0.14) 0.18
1995
Net sales................................. $403,968 $271,477 $190,225 $134,329
Gross margin.............................. 64,038 49,782 40,493 29,024
Net income................................ 20,957 15,605 16,918 11,606
Earnings per share........................ 0.23 0.17 0.20 0.14
</TABLE>

In the fourth quarter of fiscal 1996, the Company recorded certain
adjustments increasing pre-tax income by approximately $4.0 million, and net
income by approximately $2.5 million or $.03 per share. The adjustments
include a benefit to cost of goods sold of approximately $13.0 million related
to revisions of estimates for product and process technology costs and an
accrual, included in selling, general and administrative expense, of $9.0
million related to revisions of estimates for selling costs associated with
sales of PC systems.

F-17
<PAGE>

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PRO-
SPECTUS SUPPLEMENT OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPEC-
TUS, NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.

--------------

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ S-3
The Company............................................................... S-5
Risk Factors.............................................................. S-7
Use of Proceeds........................................................... S-16
Capitalization............................................................ S-16
Price Range of Common Stock and Dividend Policy........................... S-17
Selected Financial Information............................................ S-18
Selected Pro Forma and Actual Financial Data.............................. S-19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-20
Business.................................................................. S-36
Management................................................................ S-53
Certain Relationships with Micron Technology, Inc. ....................... S-56
Selling Shareholders...................................................... S-58
Underwriting.............................................................. S-59
Legal Matters............................................................. S-60
Index to Financial Statements............................................. F-1
</TABLE>

PROSPECTUS

<TABLE>
<S> <C>
Available Information....................................................... 2
Incorporation of Certain Documents by Reference............................. 2
The Company................................................................. 3
Risk Factors................................................................ 3
Use of Proceeds............................................................. 3
Ratio of Earnings to Fixed Charges.......................................... 3
Description of Debt Securities.............................................. 4
Description of Capital Stock................................................ 12
Selling Shareholders........................................................ 12
Plan of Distribution........................................................ 14
Legal Opinions.............................................................. 14
Experts..................................................................... 14
</TABLE>

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13,500,000 SHARES

MICRON ELECTRONICS, INC.

COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
--------------

[LOGO OF MICRON ELECTRONICS, INC.(TM)]

--------------
GOLDMAN, SACHS & CO.

DEUTSCHE MORGAN GRENFELL

MONTGOMERY SECURITIES

ROBERTSON, STEPHENS & COMPANY
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