SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                    FORM 10-Q



      (Mark One)
      [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES                   EXCHANGE ACT OF 1934

      For the quarterly period ended                  March 4, 1999
                                    -------------------------------------------

                                       OR

      [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
           EXCHANGE ACT OF 1934

      For the transition period from                   to
                                    -------------------  ----------------------

      Commission File Number:                       0-17932
                             --------------------------------------------------





                            Micron Electronics, Inc.
                           ------------------------
            (Exact name of registrant as specified in its charter)





            Minnesota                                          41-1404301 
      -------------------------------                       -------------------
      (State or other jurisdiction of                         (I.R.S. Employer
      incorporation or organization)                        Identification No.)


      900 E. Karcher Road,  Nampa, Idaho                           83687
      -------------------------------------------------------------------------
      (Address of principal executive offices)                (Zip Code)


      Registrant's telephone number, including area code  (208) 898-3434
                                                        -----------------------

   Indicate  by check mark  whether the  registrant  (1) has filed all reports
required  to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act
of 1934 during the  preceding 12 months (or for such  shorter  period that the
registrant  was  required to file such  reports),  and (2) has been subject to
such filing requirements for the past 90 days.
Yes   X    No
     ---      ---

   The number of outstanding shares of the registrant's common stock as of 
April 9, 1999 was 96,176,444.


                                       1
<PAGE>


                  PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

Micron Electronics, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>

                              For the  quarter  ended For the six  months ended
                              March 4, February 26, March 4, February 26,
                                  1999          1998       1999          1998
-------------------------------------------------------------------------------
<S>                           <C>          <C>        <C>          <C>

Net sales                     $ 373,600    $ 494,760  $ 777,097    $1,053,650
Cost of goods sold              310,208      490,302    644,887       971,978
                              ---------    ---------  ---------    ----------
Gross margin                     63,392        4,458    132,210        81,672
Selling, general and             56,150       91,938    108,546       164,196
administrative           
Research and development          1,128        3,759      2,579         7,341
Other expense, net                3,865       19,196      3,906        21,003
                              ---------    ---------  ---------    ----------
Operating income (loss)           2,249     (110,435)    17,179      (110,868)
Gain on sale of MCMS                  -      156,222          -       156,222
common stock
Interest income, net              4,531        1,989      8,559         4,183
                              ---------    ---------  ---------    ----------
Income before taxes               6,780       47,776     25,738        49,537
Income tax provision              2,611       23,011      9,910        23,707
                              ---------    ---------  ---------    ----------
Net income                    $   4,169    $  24,765  $  15,828     $  25,830
                              =========    =========  =========     ========= 
Earnings per share:
   Basic                      $    0.04    $    0.26  $    0.16     $    0.27
   Diluted                         0.04         0.26       0.16          0.27


Number of shares used in per share calculation:
   Basic                         96,137       95,622     96,045        95,587
   Diluted                       97,080       95,735     97,174        95,798
</TABLE>


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

                                       2
<PAGE>


Micron Electronics, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except par value amounts)
<TABLE>
<CAPTION>


As of                                    March 4, 1999      September 3, 1998  
-------------------------------------------------------------------------------
<S>                                           <C>                    <C>

ASSETS
Cash and cash equivalents                     $307,719               $328,537
Liquid investments                              61,299                 29,204
Receivables, net                               140,043                128,269
Inventories                                     27,673                 30,848
Deferred income taxes                           18,000                 19,172
Other current assets                             4,573                  2,432
                                              --------               --------

   Total current assets                        559,307                538,462

Property, plant and equipment, net             154,137                147,912
Other assets                                     5,423                  6,069
                                              --------               --------

   Total assets                               $718,867               $692,443
                                              ========               ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses         $237,269               $214,930
Accrued licenses and royalties                  15,552                 18,585
Current debt                                     6,599                 16,798
                                              --------               --------

   Total current liabilities                   259,420                250,313

Long-term debt                                   8,566                 11,730
Other liabilities                               13,885                 13,506
                                              --------               --------

   Total liabilities                           281,871                275,549
                                              --------               --------

Commitments and contingencies

Common  stock,  $.01 par value,  authorized  150.0  million  shares;  issued and
outstanding  96.1  million  and 95.9  million  shares  as of  March 4,  1999 and
September 3, 1998, respectively                    961                    959
Additional capital                             127,115                122,837
Retained earnings                              308,888                293,061
Accumulated other comprehensive income              32                     37
                                              --------               --------

   Total shareholders' equity                  436,996                416,894
                                              --------               --------

   Total liabilities and shareholders'equity  $718,867               $692,443
                                              ========               ========
</TABLE>

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

                                       3
<PAGE>


Micron Electronics, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>


Six months ended                         March 4, 1999      February 26, 1998  
-------------------------------------------------------------------------------
<S>                                          <C>                    <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                   $  15,828              $  25,830
Adjustments to reconcile net income 
to net cash provided by (used for) 
operating activities:
      Depreciation and amortization             15,928                 21,771
      Gain on sale of MCMS common stock              -               (156,222)
      Provision for doubtful accounts               (8)                 3,817
      Changes in assets and liabilities,
      net of the effect of the sale of MCMS:
        Receivables                            (11,103)                25,316
        Inventories                              3,483                 37,253
        Accounts payable and accrued expenses   23,801                  7,577
        Accrued licenses and royalties          (3,034)                   513
        Deferred income taxes                    2,442                 (7,303)
        Other                                     (617)                 7,988
                                              --------               --------
Net cash provided by (used for) operating 
activities                                      46,720                (33,460)
                                              --------               --------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and 
equipment                                      (25,287)               (44,502)
Proceeds from sales of property, plant and 
equipment                                          329                  5,802
Proceeds from sale of MCMS common stock, 
net of cash                                          -                235,884
Purchases of held-to-maturity investment 
securities                                     (77,840)                     -
Proceeds from maturities of investment
securities                                      46,205                      -
Other                                             (904)                (1,231)
                                              --------               -------- 
Net cash (used for) provided by investing 
activities                                     (57,497)               195,953
                                              --------               -------- 
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings                             -                    173
Repayments of debt                             (14,369)                (6,291)
Proceeds from issuance of common stock           3,998                    935
Purchase and retirement of stock                     -                    (29)
                                              --------               --------
Net cash used for financing activities         (10,371)                (5,212)
                                              --------               --------
Net (decrease) increase in cash and cash 
equivalents                                    (21,148)               157,281
Effect of exchange rate changes on cash and 
cash equivalents                                   330                   (141)
Cash and cash equivalents at beginning of 
period                                         328,537                183,935
                                              --------               --------

Cash and cash equivalents at end of period    $307,719               $341,075
                                              ========               ========
</TABLE>


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

                                       4
<PAGE>



Micron Electronics, Inc.
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except per share amounts)


1. Unaudited Interim Financial Statements

   In the opinion of management, the accompanying unaudited financial statements
contain all  adjustments  (consisting  solely of normal  recurring  adjustments)
necessary to present fairly the financial position of Micron  Electronics,  Inc.
and  its  subsidiaries  (collectively,  the  "Company")  and  their  results  of
operations and cash flows.  Certain  reclassifications  have been made,  none of
which affect  results of  operations,  to present the financial  statements on a
consistent basis.

   This report on Form 10-Q for the second quarter ended March 4, 1999 should be
read in conjunction  with the Company's  Report on Form 10-K for the fiscal year
ended September 3, 1998. Portions of the accompanying  financial  statements are
derived from the audited  year-end  financial  statements  of the Company  dated
September 3, 1998. The Company's fiscal year is a 52 or 53 week period ending on
the Thursday closest to August 31.

   Revenue  from  product  sales  to  customers  is  generally  recognized  upon
shipment.  A provision for estimated  sales returns and discounts is recorded in
the period in which the sales are  recognized.  Revenue from service and support
contracts for which the Company is primarily  obligated is  recognized  over the
term of the  contract.  Revenue  from  sales  of  third  party  on-site  service
contracts  for which the Company is not  obligated is  recognized at the time of
sale.

   The Company adopted  Statement of Position ("SOP") 98-1,  "Accounting for the
Costs of Computer  Software  Developed or Obtained  for Internal  Use" as of the
first quarter of fiscal 1999. SOP 98-1 requires  companies to capitalize certain
costs of computer software developed or obtained for internal use, provided that
those costs are not research and development.  As a result of adopting SOP 98-1,
the Company  capitalized $0.6 million of internal software  development costs in
the second fiscal  quarter of 1999. For the first six months of fiscal 1999, the
Company capitalized $1.6 million of internal software development costs.


2. Gain on Sale of MCMS Common Stock

   On February 26, 1998,  the Company  completed the sale of 90% of its interest
in MCMS, Inc. ("MCMS"),  formerly Micron Custom Manufacturing Services, Inc. and
a  wholly-owned  subsidiary  of  the  Company.  The  sale  was  structured  as a
recapitalization  of MCMS (the  "Recapitalization"),  whereby Cornerstone Equity
Investors IV, L.P. ("Cornerstone"), other investors and certain members of MCMS'
management,  including Robert F. Subia, then a director of the Company, acquired
the 90% interest in MCMS. In exchange for the 90% interest in MCMS,  the Company
received $249.2 million in cash. Subsequent to the Recapitalization of MCMS, the
Company  owned a 10% interest in MCMS,  which is accounted for by the Company on
the cost  method of  accounting.  Accordingly,  results  of  operations  of MCMS
subsequent  to February  26, 1998 are  excluded  from the  Company's  results of
operations.

<TABLE>
<CAPTION>

3. Receivables
                                        March 4, 1999       September 3, 1998
-------------------------------------------------------------------------------
<S>                                          <C>                     <C>

Trade receivables                            $124,558                $122,294
Receivables from affiliates, net                    -                     105
Income taxes recoverable from parent 
corporation                                    14,156                   3,068
Other                                           7,454                  10,090
Allowance for doubtful accounts                (3,609)                 (3,709)
Allowance for returns and discounts            (2,516)                 (3,579)
                                             --------                -------- 
                                             $140,043                $128,269
                                             ========                ========
</TABLE>


                                       5
<PAGE>


Micron Electronics, Inc.
Notes to Financial Statements--Continued
(Tabular amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>


4. Inventories
                                        March 4, 1999       September 3, 1998
-------------------------------------------------------------------------------
<S>                                          <C>                     <C>

Raw materials and supplies                   $ 13,395                $ 16,144
Work in progress                                6,133                   4,469
Finished goods                                  8,145                  10,235
                                              -------                 -------
                                             $ 27,673                $ 30,848
                                             ========                ========

5. Property, Plant and Equipment
                                        March 4, 1999       September 3, 1998
-------------------------------------------------------------------------------
Land                                         $  1,234                $  1,234
Buildings                                      34,745                  34,826
Equipment and software                        166,594                 145,310
Assets in progress                             33,160                  38,197
                                              -------                 -------
                                              235,733                 219,567
Less accumulated depreciation and 
amortization                                  (81,596)                (71,655)
                                              -------                 -------
                                             $154,137                $147,912
                                             ========                ========
</TABLE>



     Effective September 4, 1998, the Company revised its estimated useful lives
of  certain  information  technology  assets,   including  enterprise  software,
enterprise  hardware and  telecommunications  systems.  The  original  estimated
useful lives of these assets were two and three  years,  with the revised  lives
extended to five years, on a prospective basis,  which more accurately  reflects
their actual  useful  lives.  The effect of this change was to reduce the second
fiscal quarter 1999  depreciation and amortization by $1.1 million ($0.7 million
net of tax) or $0.01 per diluted share,  net of taxes.  For the first six months
of fiscal  1999,  the  effect of this  change  was to  reduce  depreciation  and
amortization  by $2.5  million  ($1.5  million  net of tax) or $0.02 per diluted
share, net of taxes.

<TABLE>
<CAPTION>

6. Accounts Payable and Accrued Expenses

                                        March 4, 1999       September 3, 1998
-------------------------------------------------------------------------------
<S>                                          <C>                     <C>

Trade accounts payable                       $156,435                $146,124
Payable to affiliates                          41,704                  20,601
Salaries, wages and benefits                   16,462                  20,496
Income taxes payable                              537                      92
Equipment contracts payable                     1,895                   3,884
Accrued warranty                               16,623                  17,128
Other                                           3,613                   6,605
                                             --------                --------
                                             $237,269                $214,930
                                             ========                ========

</TABLE>



                                       6
<PAGE>


Micron Electronics, Inc.
Notes to Financial Statements--Continued
(Tabular amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>

7. Debt
                                        March 4, 1999       September 3, 1998
-------------------------------------------------------------------------------
<S>                                          <C>                    <C>

Notes payable in periodic 
installments through September 2001,
weighted average interest rate of 
7.85% and 7.63%, respectively               $  11,996               $  16,068
Capitalized lease obligations payable 
in monthly installments through June 2000, 
interest rate of 7.28%, respectively            3,169                   4,284
Amounts outstanding under revolving loan 
agreement, variable interest of 1.34%               -                   8,176
                                             --------                --------
                                               15,165                  28,528
Less current portion                           (6,599)                (16,798)
                                             --------                --------
                                            $   8,566               $  11,730
                                             ========                ========
</TABLE>

   The Company has an unsecured  credit  agreement,  expiring June 2001,  with a
group  of  financial  institutions  providing  for  borrowings  totaling  $100.0
million. As of March 4, 1999, the Company was eligible to borrow the full amount
under 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.

     The Company's  wholly-owned  subsidiary,  Micron  Electronics Japan, had an
unsecured   revolving  credit  facility  with  a  financial   institution.   The
outstanding  borrowings  under this facility were fully repaid during the second
fiscal quarter of 1999 and the revolving credit facility was cancelled.

   Certain of the Company's notes payable are collateralized by equipment with a
total cost of $20.9 million and accumulated  depreciation of $11.2 million as of
March 4, 1999.


8. Other Expense, Net

   Other  expense in the second  quarter of fiscal 1999  included  $3.9  million
associated  with  the  Company's   closure  and   consolidation  of  its  Micron
Electronics Japan operation into its Nampa operations. The charge includes those
costs  associated  with  employee  payroll  and  severance  of $1.5  million for
approximately  45 employees,  fixed asset  write-downs  of $0.7  million,  lease
obligations  of  $0.6  million,   pre-committed  advertising  of  $0.2  million,
incremental  future  service  costs of $0.2  million and $0.7  million for other
closure related costs. The Company has a remaining liability of $1.6 million for
employee  severance  costs,  future lease  obligation  costs,  and other related
closure  costs,  which  have been  included  in  accounts  payable  and  accrued
expenses,  as of March 4,  1999.  The  Company  anticipates  that all  remaining
liabilities will be settled by September 2, 1999.

   Other expense in the second  quarter of fiscal 1998 included $13.0 million of
costs  associated  with the  Company's  actions to realign its PC  operations to
concentrate  on its  core  markets  and  customers.  Such  actions  include  the
consolidation of the Company's  domestic and international PC operations and the
reduction  of  10%  of its  workforce,  or  approximately  450  employees,  from
generally  all  areas of the  Company.  Costs  associated  with the  realignment
include  employee  termination  benefits of $6.7  million;  $1.8 million for the
write-down of equipment and  leasehold  improvements;  $1.0 million in estimated
costs for claims  related to the  realignment;  $0.7 million in aggregate  costs
associated  with  vacating  a  leased  facility  in  Milpitas,  California,  two
international sales offices and an outlet store in Minneapolis,  Minnesota; $0.6
million  for the  write-off  of current  technologies  and $0.3  million for the
write-off other intangible  assets  (consisting of customer lists,  trade names,
workforce and distribution  and other  contracts)  associated with the Company's
NetFRAME enterprise server operations. In the fourth quarter of fiscal 1998, the
actions  related  to  this  realignment  were  substantially  complete  and  the
estimated costs were reduced by $1.9 million.

                                       7
<PAGE>


Micron Electronics, Inc.
Notes to Financial Statements--Continued
(Tabular amounts in thousands, except per share amounts)

     During the second quarter of fiscal 1998 and the first six months of fiscal
1998,  the Company  wrote-off  costs  totaling  $2.5  million and $5.2  million,
respectively,   associated  with  abandoned  internal  use  enterprise  software
development  projects.  The software  included an order entry  system,  an order
configuration  tool and part of a material  requirements  planning package.  The
software was abandoned  after the Company  concluded  such  software  lacked the
functionality  desired by the Company.  The Company also wrote off various fixed
assets, with a remaining book value of $1.6 million,  which no longer were to be
used in the Company's operations during the second quarter of fiscal 1998.
<TABLE>
<CAPTION>

9. Transactions with Affiliates
                             For the quarter ended   For the six months ended
                            March 4,  February 26,     March 4,  February 26,
                                1999          1998         1999          1998
-------------------------------------------------------------------------------
<S>                         <C>          <C>           <C>           <C>

Net sales                   $  1,154     $ 10,373      $  1,752      $ 17,838
Inventory purchases           11,303        6,305        22,432        23,619
Component recovery agreement  19,707        6,589        35,792        14,941
Administrative services and
other expenses                   115          643           229           911
Property, plant and
equipment purchases            1,665          314         3,535           577
Property, plant and 
equipment sales                    -          159             -         5,307
Construction management 
services                           -            9             -           110
</TABLE>

   The above  transactions with affiliates  include those of MCMS up to February
26, 1998. The Company  recognizes  costs  incurred under the component  recovery
agreement as a component of cost of goods sold in the consolidated  statement of
operations.


10.   Income Taxes

   The effective  tax rate of 38.5% for the second  quarter and first six months
of fiscal 1998  principally  reflected the federal  statutory  rate,  net of the
effect of state taxes. The provision for income taxes for the second quarter and
first six months of fiscal 1998  reflects the  Company's  effective  tax rate of
39.5%, principally the federal statutory rate, net of the effect of state taxes,
plus $4.1  million for the  write-off  of a deferred  tax asset  relating to the
Company's consolidation of its NetFRAME enterprise server operation.


11.   Comprehensive Income

   The Company adopted Statements of Financial  Accounting Standard ("SFAS") No.
130,  "Reporting  Comprehensive  Income" as of the first quarter of fiscal 1999.
The  adoption  of this  statement  had no impact  on the  Company's  current  or
previously reported net income or shareholders' equity.

<TABLE>
<CAPTION>


                            For the quarter ended    For the six months ended
                            March 4,  February 26,     March 4,  February 26,  
                               1999           1998         1999          1998  
-------------------------------------------------------------------------------
<S>                        <C>              <C>        <C>           <C>
Net Income                 $  4,169         24,765     $ 15,828      $ 25,830
Reclassification adjustment 
for loss included in net 
income                            -          2,514            -         2,514
Foreign currency translation    345           (537)          (5)       (1,783)
                           --------       --------     --------       -------
Comprehensive
income                     $  4,514       $ 26,742     $ 15,823      $ 26,561
                           ========       ========     ========      ========
</TABLE>

                                       8
<PAGE>

Micron Electronics, Inc.
Notes to Financial Statements--Continued
(Tabular amounts in thousands, except per share amounts)

Accumulated   other   comprehensive   income   presented  in  the   accompanying
consolidated   balance  sheets  consists  of  the  cumulative  foreign  currency
translation adjustment. The reclassification adjustment for loss included in net
income is related to the sale of MCMS common stock on February 26, 1998.

12.   Earnings Per Share

      Basic earnings per share is computed using the weighted  average number of
common  shares  outstanding.  Diluted  earnings per share is computed  using the
weighted  average  number of common  shares  outstanding  and common  equivalent
shares outstanding. Common equivalent shares result from the assumed exercise of
outstanding  stock  options.  Diluted  earnings per share excludes the effect of
antidilutive stock options.

<TABLE>
<CAPTION>


                             For the quarter ended   For the six months ended
                            March 4,  February 26,     March 4,  February 26,  
                               1999           1998         1999          1998  
-------------------------------------------------------------------------------
<S>                        <C>            <C>          <C>           <C>

Net income available to 
common shareholders        $  4,169       $ 24,765     $ 15,828      $ 25,830
                           ========       ========     ========      ========
Common shares outstanding:
Weighted average shares 
outstanding - basic          96,137         95,622       96,045        95,587
Effect of dilutive stock 
options                         943            113        1,129           211
                           --------       --------     --------       -------
Weighted average shares 
outstanding - diluted        97,080         95,735       97,174        95,798
                           ========       ========     ========      ========
Earnings per share:
   Basic                   $    .04       $    .26     $    .16      $    .27
   Diluted                      .04            .26          .16           .27
</TABLE>


13.   Commitments

   As of  March 4,  1999,  the  Company  had  commitments  of $9.3  million  for
equipment purchases and $2.0 million for construction of buildings. In addition,
the  Company  is  required  to  make  minimum  royalty  payments  under  certain
agreements  and  periodically  enters into  purchase  commitments  with  certain
suppliers.


14.   Contingencies

     Periodically, the Company is made aware that technology used by the Company
may infringe on  intellectual  property  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's  results of operations in the
fourth  quarter of fiscal 1998 were  favorable  affected by a benefit to cost of
goods sold of $11.8 million  related to revisions of estimates of  contingencies
for product and process  technology  costs for two patent  infringement  matters
based on new information learned by management in the fourth quarter of 1998.

   The  Company  is  involved  in  litigation  and  administrative   proceedings
primarily  arising  in the  normal  course of its  business.  In the  opinion of
management,  the Company's recovery, if any, or the Company's liability, if any,
under any litigation or  administrative  proceedings would not materially affect
its financial condition, results of operations or cash flows.

   During the third  quarter of fiscal  1997,  the Company  began to collect and
remit  applicable  sales or use  taxes in  nearly  all  states.  In  association
therewith,  the  Company is party to  agreements  with  nearly all states  which
generally  limit the  liability of the Company,  if any, for  non-remittance  of
sales and use taxes prior to such  agreements'  effective dates. The Company has

                                       9
<PAGE>

Micron Electronics, Inc.
Notes to Financial Statements--Continued
(Tabular amounts in thousands, except per share amounts)

previously  accrued a liability  for the  estimated  settlement  costs of issues
related  to sales and use  taxes  not  covered  by such  agreements.  Management
believes the resolution of any matters relating to the  non-remittance  of sales
and use taxes will not  materially  affect the  Company's  business,  results of
operations or cashflows.


                                       10
<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition and 
Results of Operations

      Statements  contained in this Form 10-Q that are not purely historical are
forward-looking  statements  and are being  provided in reliance  upon the "safe
harbor" provisions of the Private Securities  Litigation Reform Act of 1995. All
forward-looking  statements  are made as of the  date  hereof  and are  based on
current management  expectations and information  available to the Company as of
such date.  The  Company  assumes no  obligation  to update any  forward-looking
statement.  It is important to note that actual results could differ  materially
from historical results or those contemplated in the forward-looking statements.
Forward-looking  statements  involve a number of risks  and  uncertainties,  and
include  trend  information.  Factors that could cause actual  results to differ
materially  include,  but are not  limited  to,  those  identified  in  "Certain
Factors"  and  in  other  Company  filings  with  the  Securities  and  Exchange
Commission.  All quarterly  references are to the Company's fiscal periods ended
March 4,  1999,  September  3,  1998 or  February  26,  1998,  unless  otherwise
indicated.  The fiscal year ended September 3, 1998 contained  fifty-three weeks
compared to fifty-two  weeks in fiscal year 1999. All tabular dollar amounts are
stated in thousands.  Certain  reclassifications have been made in the following
discussion and analysis to present results of operations on a consistent basis.


Overview

   Micron  Electronics,  Inc.  and its  subsidiaries  (hereinafter  referred  to
collectively  as "Micron" or the  "Company")  is a leading  provider of personal
computers sold through the direct channel.  The Company develops,  manufactures,
markets and supports  electronic  products  for a broad range of  computing  and
digital  applications.  The Company custom builds a wide variety of notebook and
desktop  PC  systems  and  servers  for  its  core  customers  in the  consumer,
commercial  and public  sectors.  The  Company's  SpecTek  semiconductor  memory
products  operation  recovers memory components for specific  applications.  The
Company is majority owned by Micron Technology, Inc. ("MTI").

Results of Operations

   Net income for the second  quarter of fiscal 1999 was $4.2 million,  or $0.04
per  diluted  share,  on net sales of $373.6  million  compared to net income of
$24.8 million,  or $0.26 per diluted  share,  on net sales of $494.8 million for
the second quarter of fiscal 1998. Net income for the first six months of fiscal
1998 was $15.8  million,  or $0.16  per  diluted  share,  on net sales of $777.1
million compared to net income of $25.8 million,  or $0.27 per diluted share, on
net sales of $1,053.7 million for the first six months of fiscal 1998.

   On February 26, 1998,  the Company  completed the sale of 90% of its interest
in MCMS, Inc. ("MCMS"),  formerly Micron Custom Manufacturing Services, Inc. and
a  wholly-owned  subsidiary  of  the  Company.  The  sale  was  structured  as a
recapitalization  of MCMS (the  "Recapitalization"),  whereby Cornerstone Equity
Investors IV, L.P. ("Cornerstone"), other investors and certain members of MCMS'
management,  including Robert F. Subia, then a director of the Company, acquired
the 90% interest in MCMS. In exchange for the 90% interest in MCMS,  the Company
received $249.2 million in cash.  Results of operations in the second quarter of
fiscal 1998 include a pre-tax gain of $156.2 million ($94.5 million or $0.98 per
diluted  share,  after taxes)  realized from the sale.  The Company's  financial
statements  for the second  quarter and first six months of fiscal 1998  include
the  results  of  MCMS'   operation   for  that   period.   Subsequent   to  the
Recapitalization  of MCMS,  the Company  owned a 10% interest in MCMS,  which is
accounted  for by the  Company on the cost  method of  accounting.  Accordingly,
results of operations of MCMS subsequent to February 26, 1998 have been excluded
from the Company's results of operations.

Net Sales
<TABLE>
<CAPTION>

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

                           Second Quarter                     Six Months
        ----------------------------------- -----------------------------------
                 1999              1998               1999             1998
        ----------------- ----------------- ----------------- -----------------
<S>     <C>         <C>   <C>         <C>   <C>         <C>   <C>         <C>

PC 
systems $  323,471  86.6% $  403,044  81.4% $  687,630  88.5% $  862,084  81.8%
Contract 
manufacturing    -     -      71,522  14.5%          -     -     141,723  13.5%
SpecTek memory 
products    50,129  13.4%     20,194   4.1%     89,467  11.5      49,843   4.7%
         --------- ------  --------- ------  --------- -----   ---------- -----
Total net 
sales   $  373,600 100.0% $  494,760 100.0% $  777,097 100.0% $1,053,650 100.0%
        ========== ====== ========== ====== ========== ====== ========== ======
</TABLE>


                                       11
<PAGE>


     Personal Computer Systems. Net sales of PC systems were lower in the second
quarter of fiscal 1999 compared to the second  quarter of fiscal 1998  primarily
as a result of a 3%  decrease  in unit sales of PC systems  and a 9% decrease in
average  selling  prices for the  Company's PC systems.  Net sales of PC systems
were  lower in the first six  months of fiscal  1999  compared  to the first six
months of fiscal 1998 primarily as a result of a 14% decrease in average selling
prices,  with unit sales of PC systems essentially flat. Net sales of PC systems
were 11% lower in the  second  quarter  of  fiscal  1999  compared  to the first
quarter of fiscal 1999  primarily as a result of a 14% decrease in unit sales of
PC systems,  which was  partially  offset by a 4%  increase  in average  selling
prices  during the quarter.  The second  quarter of fiscal 1999 was  unfavorably
impacted by factors  including:  seasonal  slowdown in the  Company's  strategic
government segment; continued industry pricing pressure in its consumerbusiness;
and purchase  deferrals  from the early  promotion  and  late-quarter  timing of
Intel's Pentium III processor introduction.

   Unit  sales of  desktop  systems  were 84% and 83% of total  unit sales of PC
systems  during  the  second  quarter  and  first six  months  of  fiscal  1999,
respectively,  compared  to 83% and 85% in the  corresponding  periods  in 1998.
Average selling prices for the Company's desktop products were 11% and 13% lower
in the  second  quarter  and first six  months  of  fiscal  1999,  respectively,
compared to the  corresponding  periods in fiscal 1998  primarily as a result of
price  competition  and  product  discounting  in the PC  industry  for  desktop
products.

   Unit  sales of  notebook  systems  were 14% and 15% of total unit sales of PC
systems  during  the  second  quarter  and  first six  months  of  fiscal  1999,
respectively,  compared  to 15% and 14% in the  corresponding  periods  in 1998.
Average  selling  prices for the  Company's  notebook  products were 16% and 24%
lower in the second  quarter and first six months of fiscal 1999,  respectively,
compared to the  corresponding  periods in fiscal 1998  primarily as a result of
intense price competition in the PC industry for notebook products.

     Customer  segment  revenue mix for the quarter was 55%  consumer  and small
business;  19% commercial business;  22% government sector and 4% international.
This is a significantly different mix than that experienced in the first quarter
of fiscal 1999,  with second  quarter of fiscal 1999 consumer and small business
representing  a higher  relative  percentage  of the  sales  mix and  government
business  representing  a lower  percentage of the mix. The Company  experienced
sequential growth of greater than 20% in the mid-market relationship PC business
compared to the first quarter of fiscal 1999.

   Sales to governmental  entities,  including prime  contractors  under certain
federal  government  procurement  programs,  were 22%,  34% and 13% of total net
sales of PC systems in the second  quarter and first  quarter of fiscal 1999 and
second  quarter  of  fiscal  1998,  respectively.  The  level  of the  Company's
governmental sales is 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.  As a result,  the level of such sales 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 and cash flows.

   SpecTek  Semiconductor  Memory Products.  Net sales of  semiconductor  memory
products  were 148% higher in the second  quarter of fiscal 1999 compared to the
second  quarter of fiscal 1998  primarily  due to a 185% increase in megabits of
memory shipped,  partially offset by a 7% decline in average selling prices. The
increase in megabits of memory shipped was primarily due to the strengthening of
demand for  substantially  all memory  products.  The  Company  has  experienced
significant  volatility  in prices and  anticipates  significant  volatility  in
prices for future sales of semiconductor memory products.  The Company's SpecTek
semiconductor  memory products  results of operations are influenced by a number
of factors including pricing for, and availability of, nonstandard semiconductor
memory components.  See "Certain Factors--SpecTek  Semiconductor Memory Products
Operation."

     The Company has a Component  Recovery  Agreement (the  "Component  Recovery
Agreement")  with MTI,  which  expires on September 2, 1999.  Additionally,  the
Component  Recovery  Agreement  may be terminated by MTI in the event that MTI's
ownership  of  the  Company  falls  below  30%.  Under  the  Component  Recovery
Agreement,  MTI is required  to deliver to the  Company  all of the  nonstandard
memory components produced at MTI's semiconductor  manufacturing operations. The
Company's  cost of such  components  generally is  determined as one-half of the
operating  income  generated from the Company's  SpecTek sales of  semiconductor
memory products supplied by MTI.

     MTI has indicated  that it does not intend to renew the Component  Recovery
Agreement  according to its current  arrangement  after  September 2, 1999.  The
Company is negotiating  with MTI regarding  possible  extension of the Component
Recovey  Agreement  under modified terms. To date, no agreement for extension of
the Component Recovery Agreemnt has been reached and such agreement, if any, may
contain  terms and  conditions  less  favorable  to the Company than the current
arrangement.  A substantial majority of the semiconductor components used in the
Company's  SpecTek  operation  is obtained  from MTI. In the second  quarter and
first six months of fiscal 1999, the Company obtained 99% of its components from
MTI,  compared  to 74% and 67% in the  second  quarter  and first six  months of
fiscal 1998, respectively. Additionally there can be no assurance that the

                                       12
<PAGE>


Company will be able to obtain components from semiconductor  manufacturers
other than MTI in quantities sufficient to meet demand for the Company's SpecTek
products.   Many  semiconductor  memory  manufacturers  are  reluctant  to  sell
nonstandard  memory components  because such components could compete with their
full  specification   memory  components  for  similar   applications  and  some
manufacturers  are concerned  that  subsequent  testing  performed by a recovery
operation  could reveal  proprietary  data  regarding  manufacturing  yields and
processes.  Because of such factors,  the termination of the Component  Recovery
Agreement,  or the  renewal  of the  Component  Recovery  Agreement  under  less
favorable terms,  would have a material adverse effect of the Company's business
and results of operations and cashflows.

<TABLE>
<CAPTION>

Gross Margin
                           Second Quarter                     Six Months       
                 ------------------------------  ------------------------------
                        1999            1998              1999           1998 
                 --------------  --------------  --------------  --------------
                           % of            % of            % of            % of
                   Amount Sales    Amount Sales    Amount Sales    Amount Sales
                 -------- -----  -------- -----  -------- -----  -------- -----
<S>              <C>      <C>    <C>      <C>    <C>      <C>    <C>       <C>

PC systems       $ 44,479 13.8%  $ (6,262)(1.6%) $ 98,984 14.4%  $ 52,616  6.1%
Contract 
manufacturing           -    -      7,507 10.5%          -    -    17,598 12.4%
SpecTek memory 
products           18,913 37.7%     3,213 15.9%    33,226 37.1%    11,458 23.0%
                 --------        --------        --------        --------
Total gross 
margin           $ 63,392 17.0%  $  4,458  0.9%  $132,210 17.0%  $ 81,672  7.8%
                 ========        ========        ========        ========
</TABLE>

   Personal Computer Systems. Gross margin from the Company's PC operations was
13.8% in the  second  quarter  of  fiscal  1999  compared  to 15.0% in the first
quarter of fiscal 1999 and (1.6%) in the second  quarter of the fiscal 1998.  PC
gross margins in the second quarter of fiscal 1999 were unfavorably  impacted by
increased pricing  pressure,  seasonally higher returns in the consumer segment,
the business mix impact of  relatively  higher  consumer  and  seasonally  lower
government sales.

   Gross margin in the second quarter of fiscal 1998 was negatively  impacted by
a decline in average  selling  prices of the Company's  notebook  products.  The
Company's  purchases  of  notebook  products  from third  party  suppliers  have
required volume and price commitments with long lead times. During the first and
second  quarters  of fiscal  1998,  the Company  entered  into  arrangements  to
purchase  notebook  products at committed  prices. As a result of the decline in
industry-wide  pricing for notebook  products,  the Company's selling prices for
notebook  products  in the second  quarter of fiscal  1998  declined  to a level
significantly  below the  Company's  cost.  As a result,  the  Company  realized
significant losses on notebook products sold during the second quarter of fiscal
1998 and wrote down the value of  inventories  by $25.3 million to their current
market value.  Gross margin in the first six months of fiscal 1998 was adversely
affected by losses of  approximately  $6.4 million  realized from disposition of
excess PC component inventories.

   The Company  expects to  continue  experiencing  significant  pressure on its
gross  margin on sales of its PC systems 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  forecast  demand and manage
its  inventories  of PC  components.  See  "Certain  Factors--Personal  Computer
Systems--     Competition"    and    "Certain     Factors--Personal     Computer
Systems--Inventory Management."

   SpecTek  Semiconductor Memory  Products.  The gross  margin  realized  by the
Company's  SpecTek  semiconductor  memory  products  operation was higher in the
second  quarter  and first six  months of fiscal  1999  compared  to the  second
quarter and first six months of fiscal 1998 due to lower costs of components and
strengthening of demand. The Company has experienced  significant  volatility in
selling prices and expects average selling prices for its SpecTek  semiconductor
memory products to continue to exhibit significant volatility.  As a result, the
gross margin for the Company's SpecTek  semiconductor  memory products operation
could  decline  and  adversely  affect the  Company's  business  and  results of
operations and cash flows. See "Certain  Factors--SpecTek  Semiconductor  Memory
Products Operation--Pricing of Semiconductor Memory Products."

                                       13
<PAGE>
<TABLE>
<CAPTION>

Selling, General and Administrative
                                  Second Quarter              Six Months
                         ------------------------     -------------------------
                            1999 Change      1998         1999 Change      1998
                         ------------------------     -------------------------
<S>                      <C>     <C>      <C>         <C>      <C>     <C>
Selling, general and
administrative           $56,150 (38.9%)  $91,938     $108,546 (33.9%) $164,196
as a % of net sales        15.0%            18.6%        14.0%            15.6%
</TABLE>

     Selling,  general and  administrative  expenses  for the second  quarter of
fiscal 1999 were $56.2  million  versus  $52.4  million in the first  quarter of
fiscal 1999 and $91.9 million in the second quarter of fiscal 1998. The increase
in the second  quarter of fiscal  1999 from the first  quarter of fiscal 1999 is
primarily due to additional labor costs associated with the expanded field sales
personnel in operation for the entire  quarter,  seasonally  higher  service and
support expenses  associated with the customer business and higher broadcast and
print  advertising  expenses due to  supplemental  advertising to counteract the
anticipated  impact from the early promotion of the Intel Pentium III processor.
The Company  expects that  selling,  general and  administrative  expenses  will
remain at or slightly  below current  levels in the coming  quarter,  which will
include an estimated savings of approximately $1.5 million per quarter resulting
from the  consolidation  of the Company's Japan  operations as discussed  below.
Selling,  general  and  administrative  expenses  during the first six months of
fiscal 1998  compared to the  corresponding  periods in 1999 were  significantly
higher due to higher  levels of  personnel,  provision  for  doubtful  accounts,
advertising and other costs  associated with the Company's PC operation in 1998.
The six months of fiscal 1998 also includes  those costs related to MCMS,  which
was sold on February 26, 1998.
<TABLE>
<CAPTION>

Other Expense, net
                                  Second Quarter              Six Months
                             ----------------------     -----------------------
                              1999 Change      1998       1999 Change      1998
                             ----------------------     -----------------------
<S>                          <C>   <C>       <C>        <C>    <C>      <C>

Other expense, net           3,865 (79.9%)   19,196     $3,906 (81.4%)  $21,003
</TABLE>

   Other  expense in the second  quarter of fiscal 1999  included  $3.9  million
associated  with  the  Company's   closure  and   consolidation  of  its  Micron
Electronics Japan operation into its Nampa operations. The charge includes those
costs  associated  with  employee  payroll  and  severance  of $1.5  million for
approximately  45 employees,  fixed asset  write-downs  of $0.7  million,  lease
obligations  of  $0.6  million,   pre-committed  advertising  of  $0.2  million,
incremental  future  service  costs of $0.2  million and $0.7  million for other
closure related costs. The Company has a remaining liability of $1.6 million for
employee  severance  costs,  future lease  obligation  costs,  and other related
closure  costs,  which  have been  included  in  accounts  payable  and  accrued
expenses,  as of March 4,  1999.  The  Company  anticipates  that all  remaining
liabilities will be settled by September 2, 1999.

   Other  expense,  net in the second  quarter of fiscal 1998  included  $13.0
million  of costs  associated  with the  Company's  actions  to  realign  its PC
operations  to  concentrate  on its core  markets and  customers.  Such  actions
include  the  consolidation  of the  Company's  domestic  and  international  PC
operations  and the  reduction of 10% of its  workforce,  or  approximately  450
employees,  from generally all areas of the Company.  The realignment costs were
composed of $6.7 million  associated with employee  termination  benefits,  $1.8
million for the write-down of equipment and leasehold improvements, $1.0 million
in  estimated  costs for claims  related  to the  realignment,  $0.7  million in
aggregate  costs  associated  with  vacating  a  leased  facility  in  Milpitas,
California,  two international sales offices and an outlet store in Minneapolis,
Minnesota,  $0.6  million for the  write-off  of current  technologies  and $0.3
million for the write-off other intangible assets (consisting of customer lists,
trade names, workforce and distribution and other contracts) associated with the
Company's NetFRAME enterprise servers. In the fourth quarter of fiscal 1998, the
actions  related  to  this  realignment  were  substantially  complete  and  the
estimated costs were reduced by $1.9 million.

   During the second  quarter of fiscal  1998 and the first six months of fiscal
1998,  the Company  wrote-off  costs  totaling  $2.5  million and $5.2  million,
respectively,   associated  with  abandoned  internal  use  enterprise  software
development  projects.  The software  included an on-line order entry system, an
on-line order  configuration tool and part of a material  requirements  planning
package.  The software was abandoned  after the Company  concluded such software
lacked the  functionality  desired by the  Company.  The Company  also wrote off
various fixed  assets,  with a remaining  book value of $1.6  million,  which no
longer were to be used in the Company's  operations during the second quarter of
fiscal 1998.
                                       14
<PAGE>
<TABLE>
<CAPTION>
Research and Development
                                   Second Quarter              Six Months
                             -----------------------    -----------------------
                               1999 Change      1998      1999 Change      1998
                             -----------------------    -----------------------
<S>                          <C>    <C>       <C>       <C>    <C>       <C>
Research and development     $1,128 (70.0%)   $3,759    $2,579 (64.9%)   $7,341
as a % of net sales            0.3%             0.8%      0.3%             0.7%
</TABLE>
   Research and  development  expenses were higher in the second quarter and the
first six months of fiscal  1998  compared  to the second  quarter and first six
months of  fiscal  1999  primarily  as a result  of the  development  activities
associated with the Company's NetFRAME enterprise server operation.  The Company
expects that research and  development  expense will continue to decrease as the
Company focuses on current product development and enhancement.
<TABLE>
<CAPTION>

Income Tax Provision
                                   Second Quarter              Six Months 
                             -----------------------    -----------------------
                               1999 Change      1998      1999 Change      1998
                             -----------------------    -----------------------
<S>                          <C>    <C>      <C>        <C>    <C>      <C>
Income tax provision         $2,611 (88.7%)  $23,011    $9,910 (58.2%)  $23,707
</TABLE>

   The  effective  tax rate of 38.5% in the  first six  months  of  fiscal  1999
principally reflected the federal statutory rate, net effect of state taxes. The
provision for income taxes for the second quarter and first six months of fiscal
1998 reflects the Company's effective tax rate of 39.5%, principally the federal
statutory  rate and the net effect of state  taxes,  plus $4.1  million  for the
write-off of a deferred tax asset relating to the Company's consolidation of its
NetFRAME enterprise server operation.

Acquisition and Consolidation of NetFRAME

   In the  fourth  quarter  of fiscal  1997,  the  Company  acquired  all of the
outstanding common stock of NetFRAME Systems Incorporated ("NetFRAME") for $17.4
million in cash.  The  acquisition  was  accounted  for as a  purchase,  and the
purchase price was allocated to the net assets  acquired,  including  identified
intangible assets and in-process  research and development,  based on their fair
values.

   The fair value of NetFRAME's  technology  was  determined  by an  independent
appraiser  through an analysis using a risk adjusted cash flow model.  Estimated
future cash flows  derived from the  technology  or products  incorporating  the
technology  were  discounted  taking into account  risks related to existing and
future  markets  and  assessment  of the  life  expectancy  of such  technology.
Technology was segregated into that which was determined to be completed  (those
currently   technologically   feasible  but  that  may  require  adjustments  or
relatively  minor  enhancements)  and  in  process  (technologies  that  require
additional research and development efforts to reach technological feasibility).
The analysis  resulted in the  allocation  of $0.8 million of purchase  price to
completed   technology,   which  was   capitalized   and  amortized   using  the
straight-line  method over the  estimated  useful life of 30 months.  In-process
research and development  was valued by an independent  appraiser using the same
methodology as completed technology. Estimated future cash flows associated with
in-process  research  and  development  were  discounted  considering  risks and
uncertainties related to the viability,  work required to establish feasibility,
and to the completion of products ultimately to be marketed by the Company.  The
analysis  resulted  in the  allocation  of $3.9  million  of  purchase  price to
in-process  research and  development.  In  management's  opinion,  the acquired
in-process   research  and  development  had  not  yet  reached  a  stage  where
feasibility,  delivery or product features were certain at July 18, 1997 and had
no  alternative  future  use.  As a result,  acquired  in-process  research  and
development  was charged to expense  during the fourth  quarter of fiscal  1997.
Additionally,  $0.6 million of purchase price was allocated to other  identified
intangible assets,  which were capitalized and amortized using the straight-line
method over the estimated useful lives of 30 months.

   In the second quarter of 1998, the Company wrote-off the remaining book value
of capitalized  current  technologies and other intangible assets as a result of
the consolidation of the Company's NetFRAME enterprise server operation with its
other PC operations  and the  discontinuance  of further  development  of future
enterprise server technologies.
                                       15
<PAGE>

Liquidity and Capital Resources

   As of March 4,  1999,  the  Company  had cash,  cash  equivalents  and liquid
investments  of  $369.0  million,  representing  an  increase  of $11.3  million
compared to September 3, 1998.  Principal  sources of liquidity in the first six
months of fiscal  1999 were cash  flows from  operations  of $46.7  million  and
issuance of common  stock of $4.0  million  pursuant to the  exercise of options
under the Company's  1995 Stock Option Plan and Employee  Stock  Purchase  Plan.
Principal  uses of cash in the first six  months of fiscal  1999 were  property,
plant and equipment  expenditures  of $25.3 million  primarily for expansion and
capacity improvements of the Company's manufacturing operations and repayment of
debt of $14.4 million.

   The Company has an unsecured  credit  agreement,  expiring June 2001,  with a
group  of  financial  institutions  providing  for  borrowings  totaling  $100.0
million. As of March 4, 1999, the Company was eligible to borrow the full amount
under 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.

   The Company's wholly owned subsidiary,  Micron Electronics Japan K.K., had an
unsecured   revolving  credit  facility  with  a  financial   institution.   The
outstanding  borrowings  under this facility were fully repaid during the second
fiscal quarter of 1999 and the revolving credit facility was cancelled.

   On October 11, 1996,  the Company  filed a  registration  statement  with the
Securities and Exchange  Commission  allowing for the issuance from time to time
by the  Company of debt  and/or  equity  securities  with a value of up to $75.0
million, of which $51.0 million has been issued. 

   At March 4, 1999,  the Company had  commitments  of $11.3 million for capital
expenditures for expansion and upgrade of facilities and equipment.  The Company
anticipates making capital expenditures in fiscal 1999 in excess of $50 million.

   The  Company  expects  that its  future  working  capital  requirements  will
continue to increase.  The Company  believes that  currently  available cash and
cash equivalents,  liquid investments, cash flows from operations, the Company's
current credit  facilities and equipment  financings  will be sufficient to fund
its operations for the next twelve months.
                                       16
<PAGE>

Certain Factors

   In addition  to factors  discussed  elsewhere  in this Form 10-Q and in other
Company filings with the Securities and Exchange  Commission,  the following are
important  factors  which  could  cause  actual  results  or  events  to  differ
materially  from the  historical  results of the  Company's  operations or those
results or events contemplated in any  forward-looking  statements made by or on
behalf of the Company.

Personal Computer Systems

  Competition

   The PC industry is highly  competitive and has been  characterized by intense
pricing pressure,  generally low gross margin  percentages,  rapid technological
advances in hardware and software,  frequent  introduction of new products,  and
rapidly  declining  component  costs.  Competition  in the PC  industry is based
primarily  upon brand name  recognition,  performance,  price,  reliability  and
service  and  support.  The  Company's  sales of PC  systems  have  historically
benefited from increased name recognition and market acceptance of the Company's
PC systems,  primarily  resulting from the receipt by the Company of awards from
trade  publications  recognizing  the price and performance  characteristics  of
Micron brand PC systems and the Company's  service and support  functions.  As a
result of PC industry standards, the Company and its competitors 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.  Many  of  the  Company's  PC  competitors  have  greater  brand  name
recognition and market share,  offer broader product lines,  have  substantially
greater financial, technical, marketing and other resources than the Company. In
addition, the Company's competitors may benefit from component volume purchasing
and product and process technology license  arrangements that are more favorable
in  terms of  pricing  and  availability  than the  Company's  arrangements.  In
addition,  the Company may be at a relative cost  disadvantage to certain of its
competitors as a result of the Company's U.S. dollar denominated purchases of PC
components during a period of relative weakening of the U.S. dollar. The failure
of the Company to compete  effectively in the marketplace  could have an adverse
effect on the Company's business and results of operations and cash flows.

   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,   NEC  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 and are now  beginning  to sell their  products
through the direct channel.  In addition,  the Company expects to face increased
competition  in the U.S.  direct sales market from foreign PC suppliers and from
foreign and  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 United States PC direct sales market,  these  competitors
may effect a pricing  strategy that is more  aggressive than the current pricing
in the direct sales market or may have pricing strategies influenced by relative
fluctuations in the U.S. dollar compared to other currencies.

   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
decline in the rate of increase in demand for PC systems  could  increase  price
competition and could have a material  adverse effect on the Company's  business
and results of operations and cash flows.

  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  accurately  forecast  demand
for its PC products and effectively manage its PC inventories.  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 has experienced in the past, and could  experience in the
future, excess PC inventories and inventory  obsolescence  resulting from, among
other  things,  the  Company's  inaccuracy  in  forecasting  demand  for  its PC
products,  the typically  longer lead times  associated  with  notebook  product
supply,  the fast pace of technological  developments in the PC industry and the
short  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  forecast  demand for its PC products and
obtain  adequate,  but not  excessive,  supplies  of  components  to meet actual
demand.  The failure of the Company to manage its inventories  effectively could
result in excess PC inventories, inventory obsolescence, 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 and cash
flows.
                                       17
<PAGE>

  Dependence on Key Sources of Supply

   The Company  focuses on  providing PC systems  that  feature  components  and
software 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 used
in its PC systems.  The  microprocessors  used in the  Company's  PC systems are
manufactured  exclusively  by Intel and, from time to time, the Company has been
unable to obtain  sufficient  quantities  of certain Intel  microprocessors.  In
addition,  a significant  portion of the RAM components used in the Company's PC
systems are supplied by MTI, and the Company  generally  relies on MTI to supply
the latest memory densities and configurations available. 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 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  and cash
flows.

   The  Company's  notebook  products are  currently  assembled  by  third-party
manufacturers.   These  outsourcing  arrangements  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. There can
be no assurance that the Company's  outsourcing  arrangements will not result in
quality  problems  or affect the  Company's  ability to ship such  products on a
timely  basis or the  flexibility  of the Company to respond to changing  market
conditions.

  State Taxation

   During the third  quarter of fiscal  1997,  the Company  began to collect and
remit  applicable  sales or use  taxes in  nearly  all  states.  In  association
therewith,  the  Company is party to  agreements  with  nearly all states  which
generally  limit the  liability of the Company,  if any, for  non-remittance  of
sales and use taxes prior to such  agreements'  effective dates. The Company has
previously  accrued a liability  for the  estimated  settlement  costs of issues
related  to sales and use  taxes  not  covered  by such  agreements.  Management
believes the resolution of any matters relating to the  non-remittance  of sales
and use taxes will not  materially  affect the  Company's  business,  results of
operations or cashflows.

SpecTek Semiconductor Memory Products Operation

  Expiration of Component Recovery Agreement with MTI

   The Company has a Component  Recovery  Agreement (the  "Component  Recovery
Agreement")  with MTI,  which  expires on September 2, 1999.  Additionally,  the
Component  Recovery  Agreement  may be terminated by MTI in the event that MTI's
ownership  of  the  Company  falls  below  30%.  Under  the  Component  Recovery
Agreement,  MTI is required  to deliver to the  Company  all of the  nonstandard
memory components produced at MTI's semiconductor  manufacturing operations. The
Company's  cost of such  components  generally is  determined as one-half of the
operating  income  generated from the Company's  SpecTek sales of  semiconductor
memory products supplied by MTI.

     MTI has indicated  that it does not intend to renew the Component  Recovery
Agreement  according to its current  arrangement  after  September 2, 1999.  The
Company is negotiating  with MTI regarding  possible  extension of the Component
Recovey  Agreement  under modified terms. To date, no agreement for extension of
the Component  Recovery  Agreement has been reached and such agreement,  if any,
may contain terms and conditions  less favorable to the Company than the current
arrangement.  A substantial majority of the semiconductor components used in the
Company's  SpecTek  operation  is obtained  from MTI. In the second  quarter and
first six months of fiscal 1999, the Company obtained 99% of its components from
MTI,  compared  to 74% and 67% in the  second  quarter  and first six  months of
fiscal 1998,  respectively.  Additionally,  there can be no  assurance  that the
Company will be able to obtain components from semiconductor manufacturers other
than MTI in  quantities  sufficient  to meet  demand for the  Company's  SpecTek
products.   Many  semiconductor  memory  manufacturers  are  reluctant  to  sell
nonstandard  memory components  because such components could compete with their
full  specification   memory  components  for  similar   applications  and  some
manufacturers  are concerned  that  subsequent  testing  performed by a recovery
operation  could reveal  proprietary  data  regarding  manufacturing  yields and
processes.  Because of such factors,  the termination of the Component  Recovery
Agreement,  or the renewal of the Component  Recovery  Agreement  under less
favorable terms,  would have a material adverse effect of the Company's business
and results of operations and cashflows.
                                       18
<PAGE>

  Pricing of Semiconductor Memory Products

   Pricing for the Company's SpecTek  semiconductor  memory products fluctuates,
to a large  degree,  based on  industry-wide  pricing for  semiconductor  memory
products.  Historically, the Company has experienced significant declines in the
average  selling  prices  of  its  SpecTek   semiconductor  memory  products  as
industry-wide average selling prices for full specification semiconductor memory
products experienced sharp declines.  The Company believes that such declines 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
changes in relative weakness or strength of certain currencies,  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
pricing for  semiconductor  memory  products  would likely result in declines in
average selling prices of the Company's SpecTek  semiconductor  memory products,
which could have a material adverse effect on the Company's business and results
of operations and cash flows.

  Memory Product Transition

   The semiconductor memory industry is characterized by, among other things,
rapid  technological  change,  frequent product  introductions and enhancements,
difficulties  experienced in  transitioning  to new products,  relatively  short
product life cycles and volatile  market  conditions.  During periods of product
transition,  the Company's SpecTek  semiconductor  memory products operation has
experienced in the past, and may experience in the future, significant increases
in component test times and corresponding decreases in throughput.  Future gross
margins  could be  adversely  affected if the  Company is unable to  effectively
transition to new products in a timely fashion.

Year 2000

   The Year 2000 issue has arisen  because many  computer  hardware and software
systems only use the last two digits in reference to yearly periods.  Therefore,
after  December 31, 1999,  some  hardware and software  systems may  erroneously
read,  or  attempt  to read,  "00" as 1900,  rather  than  2000.  Many  computer
applications  could fail or return  erroneous  or  unpredictable  results if not
timely corrected.

   State of Readiness

   In  1998,   the  Company   established   a  Year  2000   project   team  with
representatives  from  generally  all areas of the Company.  The project team is
focusing   principally  on  the  following  four  areas:   internal  information
technology ("IT") systems; internal non-IT systems including embedded technology
associated with its  manufacturing and physical  facilities;  third parties with
whom the Company  has  significant  business  relationships;  and the  Company's
products.

   Generally,  the Company's  Year 2000  compliance  program with respect to its
internal IT and non-IT systems consists of the following phases: (a) inventory -
the identification of systems which may be impacted; (b) assessment - the review
of  identified  systems  for  Year  2000  compliance;   (c)  remediation  -  the
implementation   of  corrective  action  and,  if  need  be,  the  execution  of
contingency  plans; and (d) quality assurance testing - the verification of Year
2000 compliance. With respect to IT systems, the Company believes, as of the end
of the second quarter of fiscal 1999,  that the inventory and assessment  phases
are essentially  complete and the remediation phase is approximately  two-thirds
complete.  With respect to non-IT systems,  the inventory and assessment  phases
are  approximately  95% complete and the remediation  phase is approximately 90%
complete. The Company estimates August 31, 1999 for completion of remediation of
its mission critical IT and non-IT systems,  with the remainder of calendar 1999
to be used for resolution of any unforeseen  difficulties and quality  assurance
testing.

   The Company has  developed a process with respect to its  assessment  of Year
2000 readiness of third parties with whom the Company has  significant  business
relationships. The Company is focusing its efforts on the business relationships
most critical to its manufacturing  operations,  customer service and other core
business processes, including key suppliers, vendors, financial institutions and
utility  and  transportation  providers.  The  process  generally  involves  the
following  phases:  (a)  initial  supplier  survey;  (b)  risk  assessment;  (c)
follow-up  supplier review where necessary;  and (d) contingency  planning where
relevant.  As of the end of the second  quarter of fiscal 1999,  the Company had
received formal responses from most of its critical third party providers.  Most
of such  providers  indicated  that they expect to address Year 2000 issues in a
timely  manner.  Risk  assessments  with respect to third party  providers  were
approximately  83 percent complete as of the end of the second quarter of fiscal
1999, and it is  anticipated  that risk  assessment  with respect to all mission
critical  third party  providers  will be completed  within the third quarter of
fiscal 1999. Based on the results of the risk  assessments,  follow-up review of
                                       19
<PAGE>

the third party providers, including possible on-site reviews, may be performed.
Third party suppliers that fail to meet the Company's  requirements with respect
to Year 2000 issues may be replaced with other suppliers.

   All  Micron-branded  hardware  products  support  the  Year  2000  date and
calculation.  All Micron-branded hardware products shipped since August 26, 1996
have BIOS clocks that will  automatically roll over to "2000" after December 31,
1999. Additionally, the Company has provided software utilities to cover earlier
Micron-branded  hardware  products  to have BIOS clock that will  recognize  the
century change. All  NetFRAME-branded  server products shipped since March, 1995
are either NSTL  certified as Year 2000  compliant or  self-certified  as having
Real Time Clock  chips and BIOS that will  process  date data  correctly  on and
after  January 1, 2000.  The Company has a Web-site  dedicated to  communicating
Year 2000 issues to its customers.

   Cost to Address Year 2000 Issues

   The  estimated  costs of the  Company's  Year 2000  readiness  programs  with
respect to internal IT and non-IT  systems  and third  party  providers  are not
expected  to be  material  to the  Company's  financial  position  or results or
operations.  As of the end of the second quarter of fiscal 1999, the Company had
incurred  aggregate  incremental costs of $1.8 million related to such readiness
programs. The total additional cost to complete such programs is estimated at $1
million to $2 million. These estimated costs do not include costs related to the
potential failure of key suppliers to timely address Year 2000 issues, potential
costs related to any customer or other product  liability  claims or the cost of
internal software and hardware replaced in the ordinary course of business.  The
incremental  and  estimated  costs  include  allocated  costs  of the  Company's
information  technology  organization  incurred  in  connection  with  Year 2000
compliance  projects.  All estimates are based on currently known  circumstances
and various  assumptions  regarding future events, and actual costs could differ
materially from the estimates.

   The Company  believes that it has no obligation for any costs incurred by its
customers to address  Year 2000  issues.  However,  the Company  recognizes  the
potential for claims  against it and other  manufacturers  arising from products
which may not support the century  change,  and there can be no  assurance  that
such claims would not have a material  adverse effect on the Company's  business
or results of  operations,  financial  condition  or cash flows.  On October 26,
1998,  the Company was sued in state court in Canyon  County,  Idaho,  by Hannah
Films, Inc., on behalf of itself and on behalf of an as-of-yet  unidentified and
uncertified  class of plaintiffs  alleging fraud,  breach of implied warranty of
merchantability,  violation of the  Magnuson-Moss  Consumer  Protection Act, and
violation  of the Idaho  Consumer  Protection  Act  arising out of the Year 2000
status of a personal  computer  sold by the  Company to Hannah  Films,  Inc.  in
October  1995.  The  Company is  defending  the  matter.  While  there can be no
assurance  as to the  ultimate  disposition  of the case,  the Company  does not
currently  believe  that the  resolution  of this  matter  will have a  material
adverse  effect on the Company's  business or results of  operations,  financial
condition or cash flows.

   Year 2000 Contingency Plans

   The  Company's  contingency  plan  generally  contimplates  replacement  or
alternative  sources of those  goods and  services  necessary  to the  Company's
manufacturing and business operations. Should those necessary goods and services
become unavailable due to supplier's failure to achieve Year 2000 readiness, the
Company will review, and where appropriate, modify existing contingency plans to
address  specific  Year 2000 issues as they arise.  During the third  quarter of
fiscal  1999,  the  Company's  Year 2000  project team is expected to advise the
Company's  management  of  critical   third-party   providers  which,  based  on
information received,  do not offer full assurance of Year 2000 compliance.  The
Company  expects that  development  of contingency  plans will continue  through
calendar 1999.

   The discussion above regarding Year 2000 projected completion dates, costs,
risks and  other  forward-looking  statements  is based on  currently  available
information, and is subject to change. Based on currently available information,
the  Company  does not  believe  that  the most  reasonably  likely  worst  case
scenarios with respect to Year 2000 issues are likely to have a material adverse
effect on the Company's business or results of operations,  financial  condition
or cash flows.  However,  there can be no assurance  that Year 2000  remediation
efforts by the Company or third parties will be completed in a timely and proper
manner,  and the  failure to do so could have a material  adverse  effect on the
Company.  Additionally,  an  increase in  customer  claims  with  respect to the
Company's  products  could  have a  material  adverse  effect  on the  Company's
business and results of operations.

General

  Fluctuations in Operating Results and Stock Price

   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
                                       20
<PAGE>
not  limited to,  industry  competition,  the  Company's  ability to  accurately
forecast  demand and  selling  prices for its PC  products,  fluctuating  market
pricing  for  PCs  and  semiconductor   memory  products,   seasonal  government
purchasing cycles, inventory obsolescence,  the Company's ability to effectively
manage inventory  levels,  changes in product mix,  manufacturing and production
constraints,  fluctuating  component  costs,  the effects of product reviews and
industry awards,  availability and pricing of the memory  components used by the
Company's SpecTek  semiconductor  memory products operation,  critical component
availability,  seasonal  cycles  common in the PC  industry,  the  timing of new
product  introductions  by the Company and its competitors and global market and
economic  conditions.  As a result,  the  operating  results for any  particular
period  are not  necessarily  indicative  of the  results  that may occur in any
future  period.  The trading price of the common stock of the Company is subject
to  significant  fluctuations  due to general  market  conditions  and financial
performance  of the  Company,  MTI  and  other  companies  in  the PC  industry,
announcements  of  technological  innovations,  new  commercial  products or new
strategies  by  competitors,  component  availability  and  pricing,  and  other
factors.

 Management

   The  Company has  experienced  increased  complexity  of its  operations,  in
operating and financial information systems and in its scope of operations. This
increased complexity 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 and
other resources and systems. The Company continues to consider various expansion
alternatives, including expansion of facilities, acquisition or establishment of
facilities in new geographic  regions and certain strategic  relationships.  The
Company recently completed a realignment of its operation along its key customer
classes.  There can be no assurance  that the  Company's  management  resources,
operating and financial  information  systems and other  resources,  and systems
will be adequate to support the  Company's  existing or future  operations,  the
failure of which could have a material adverse effect on the Company's  business
and results of operations and cash flows.

  Intellectual Property Matters

   It is common in the  electronics  industry  for patent,  trademark  and other
intellectual property rights 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
and  appropriate,  seeks  to  obtain  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 intellectual property license
agreements, and as a majority-owned subsidiary of MTI, is licensed under certain
license  agreements  between MTI and third parties.  The Company's  rights under
license agreements between MTI and third parties may terminate in the event that
the  Company  is no  longer a  majority-owned  subsidiary  of MTI.  Intellectual
property  agreements  and  license  agreements  generally  require  one-time  or
periodic royalty payments and are subject to expiration at various times. If the
Company  or its  suppliers  are  unable  to  obtain  licenses  necessary  to use
intellectual property 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  and/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 the  manufacture or sale of its products,  has infringed on the
intellectual  property  rights of third parties,  could have a material  adverse
effect on the Company's business and results of operations and cash flows.

Dependence on Key Personnel

   The future  success of the Company  will depend,  in part,  on its ability to
attract and retain key management,  technical and sales and marketing personnel.
The Company  attempts to enhance  its  management  and  technical  expertise  by
recruiting  qualified  individuals  who possess desired skills and experience in
certain  targeted  areas.  There  is  competition  for  such  personnel  in  the
electronics  industries,  and the  Company's  inability to retain  employees and
attract and retain sufficient additional employees,  and information technology,
engineering  and  technical  support  resources,  could have a material  adverse
effect on the  Company's  business  and results of  operations.  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 and cash flows.

 MTI Ownership of Common Stock of the Company

   As of March 4, 1999, MTI owned 63% of the Company's outstanding common stock.
In addition,  three of the four  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
                                       21
<PAGE>

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 or modification of certain of the
Company's arrangements with MTI 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 decrease below certain levels,
certain  arrangements  may be  terminated  by MTI,  which  could have a material
adverse  effect  on  the  Company's  business  and  results  of  operations  and
cashflows. See "Intellectual Property Matters" and "SpecTek Semiconductor Memory
Products Operation--Dependence on Component Recovery Agreement with MTI."

   The level of MTI's ownership of the common stock of the Company may limit the
Company's ability to complete future equity financings. In addition, 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 price 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.

   On October 11, 1996,  the Company  filed a  registration  statement  with the
Securities and Exchange  Commission  allowing for the issuance from time to time
by the  Company of debt  and/or  equity  securities  with a value of up to $75.0
million, of which $51.0 million has been issued. The registration statement also
allows for an  additional  $250.0  million of  outstanding  common  stock of the
Company  to be sold by  certain  existing  shareholders,  consisting  of MTI and
certain management employees, of which $212.9 million has been sold.

 Government Regulation

   The Company is subject to a variety of federal, state, local and foreign laws
and  regulations,   including,   but  not  limited  to,  Federal  Communications
Commission regulations,  governmental procurement regulations, import and export
regulations,  Federal  Trade  Commission  regulations,  securities  regulations,
environmental  regulations,  antitrust regulations,  and labor regulations.  Any
failure by the Company to comply with such  regulations in the past,  present or
future could  subject the Company to  liabilities  and/or the  suspension of its
operations, which could have a material adverse effect on the Company's business
and results of operations and cash flows.

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

   Substantially  all of the Company's liquid  investments and a majority of its
debt  are at  fixed  interest  rates,  and  therefore  the  fair  value of these
instruments  is affected by changes in market  interest  rates.  However,  as of
March 4, 1999,  approximately  80% of the Company's  liquid  investments  mature
within three months and the remainder  within one year. As of March 4, 1999, the
Company  believes  the  reported  amounts of liquid  investments  and debt to be
reasonable approximations of their fair values and has the ability and intent to
hold these  instruments to maturity.  As result,  the Company  believes that the
market risk arising from its holdings of financial instruments is minimal.

      The Company uses the U.S.  Dollar as its functional  currency,  except for
its operations in Japan,  which are currently being consolidated into its Nampa,
Idaho  operations.   The  assets  and  liabilities  of  the  Company's  Japanese
operations are translated  into U.S.  Dollars at exchange rates in effect at the
balance  sheet date.  Income and  expense  items are  translated  at the average
exchange rates prevailing  during the period.  Aggregate  transaction  gains and
losses included in the determination of net income have not been material.


                                       22
<PAGE>


                           PART II. OTHER INFORMATION

Item 5.  Other Information

   On April 1, 1999,  Jill D.  Smith  became  Executive  Vice  President,  Chief
Operating  Officer of the Company.  On April 1, 1999,  Robert Lee was elected to
the Company's  Board of Directors,  replacing T. Erik Oaas,  who had  previously
resigned.


Item 6.  Exhibits and Reports on Form 8-K

   (a) The following are filed as a part of this report:

   Exhibit   Description
   -------   ------------------------------------------------------------------

   10.62   1995 Stock Option Plan, as amended through December 1, 1998
   27      Financial Data Schedule

(b) Reports on Form 8-K:


   On December 21, 1998,  the Company filed a report on Form 8-K  announcing the
retirement of T. Erik Oaas,  Executive Vice President  Finance,  Chief Financial
Officer and his  resignation  of his  position on the Board of  Directors of the
Company.

NetFRAME and SpecTek are  registered  trademarks  of the  Company.  All other  
product  names appearing herein are for  identification  purposes only and may 
be trademarks of their respective companies.


                                       23
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                                   SIGNATURES


   Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                               MICRON ELECTRONICS, INC.
                               ------------------------------------------------
                               (Registrant)


Dated:  April 16, 1999
                              /s/ James R. Stewart
                               ------------------------------------------------
                               James R. Stewart, Senior Vice President Finance
                               Chief Financial Officer (Principal Financial and
                               Accounting Officer)


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