Glenn:
MU is a true "darling stock" hence it frequently trades at prices that do not reflect its worrisome fundamentals.
The company produced a rare item last quarter,... profitability, primarily because the box builders triple ordered this fall, somehow persuading themselves that their semi suppliers might not be ready for Y2K. Dumb,... and expensive. They paid inflated prices and now they have semi product sitting on the inventory shelves even as the current prices fall off a cliff.
Prices for 64 Mbit chips, a primary product at MU, have fallen from $15. last fall, to a current $7. No bottom in sight. I expect to see under $4 before summer. Their all-up cost to produce is well above this latter number.
MU also plays games with its debt. It has not paid interest on $500.0 million borrowed 21/2 years ago (first payments may have been paid in December). It also has far too much capacity.
The company's engineering troops are long-suffering and hard working, but the company is definitely second tier with respect to leading edge technology. The company must soon invest serious bucks in new production technology if it hopes to stay in the game, but an analysis of its balance sheet suggests that it simply is in no position to so do, unless capital can be raised.
The company is ok, the stock price is insane. DOOTM puts make good sense to me, especially if modestly attacked in the early going.
The stock price will likely require more than just a bit of bad news to acquire some downside momentum.
Best, Earlie |
