Cost of capital/bit growth/survivor premium:
In response to your (all very good) points:
1) I have a big problem with cost of capital, since I've yet to hear of a semi company that has turned down a government inducement (case in point, a certain unfacilitated fab in Lehi, UT). Frankly, I don't know how it would be calculated, and that's before currency translation effects (God help us all!). What we do know is that equipment costs tend to be universal, as do materials, and they apparently account for a whole bunch (to get technical) of the cost structure. But labor costs are a factor as well and one observation is that areas of low labor costs have also tended to have low capital costs. No good answer for this one. One interesting MU note is that they have, to the best of my knowledge, never stated that they are the low cost producer, but have always stated that others have described them as the low cost producer. I've been told by people in the industry that MU's cost structure benefits handsomely from excellent attention to particle-based defects, so that higher yields lead to lower cost per die.
2) Bit growth. Straight from the Semiconductor Industry Association monthly Blue Book. It's the real deal. Key point - bit growth slowed last Spring before surging in the Fall; could there be a lagged market response to bit growth? If so, would portend a resumption of price declines beginning right about,oh say, NOW!!!
3) Survivability. One thing about having covered this industry for over 20 years is the accumulation of memories (the human kind). So I have a distinct recollection of a meeting several years ago with a former Mostek executive who described the unparalleled fun of shipping 16Mb DRAMs with the equivalent of a dollar bill wrapped around each one. Mostek's triumph over Intel in the DRAM market proved to be somewhat ephemeral, as the Japanese came in and buried it. Hopefully, Micron won't have the same experience, but the possibility can't be dismissed. The premia that should be factored into the stock should be somewhat offset by the discount that is only logical given the nature of the business.
- Tad LaFountain
(The opinions expressed on this forum are the author's and should not be viewed as those of Needham & Company, Inc.) |
