Paul, the write-up on MU in this week's Barrons touches on several points what you've been saying about MU.
Regards,
Tom
From Barrons:
Micron Technology is one of those unusual companies that maintains a
loyal following and a high valuation even though it has never earned consistent
profits. The largest maker of DRAMs, the memory devices used in personal
computers and many other tech products, Micron has surged this year, rising
38% to 48.83 after a nearly nine-point gain last week. Micron has paced the
semiconductor sector, the strongest area within technology, amid hopes that
DRAM prices have bottomed after collapsing to around $4 for the
128-megabit variety from over $15 last summer. The Micron bull case also
assumes that industry pricing discipline will improve as weaker Asian DRAM
producers exit the market.
Micron rallied last week after an unusual series of events. The company
delayed its quarterly profit report, which had been due last Wednesday, until
early this week, but did announce partial financial results, saying its
semiconductor business was profitable in the quarter and that DRAM
inventories at personal computer makers had "corrected."
Micron put off the
profit report because
of a delay in the
reporting of results
for Micron
Electronics, which
announced Friday in
conjunction with a
large quarterly loss
that it's getting out of
the personal
computer business to
focus on Web
hosting. Micron
Electronics, 60%
owned by Micron
Technology, fell 30
cents to 3.13 last
week.
Dan Niles, the
Lehman Brothers
analyst, wrote last
week that he expects
Micron to post a
slight loss in the
February quarter. He
sees a loss of 25
cents a share for the
May period and a
small profit of 35
cents in the
company's fiscal year
ending in August. The
Street estimate is for
around $2 in profits
in the following year.
In its 2000 fiscal
year, Micron earned
$2.45 a share after
losing money in the prior two years. Traditional cyclicals like paper and
chemical companies tend to trade for no more than 10 times peak earnings,
but Micron now commands 20 times its peak profits a year ago.
The bearish editor of High-Tech Strategist newsletter, Fred Hickey, who has
correctly anticipated the downturn in the PC and cell phone sectors, says
Micron's valuation is ridiculous given what he calls an "implosion" in
semiconductor orders. His view: The sharp rise in semi stocks this year is one
of the last gasps for the discredited strategy of tech momentum investing
because the current rally ultimately will fail.
Micron now has a market value of nearly $30 billion, more than five times
annualized sales, compared with a trough valuation of one times sales at its
low in 1998.
Hickey isn't the only Micron skeptic. Niles also is cautious on the stock,
pointing to its relatively high price/sales ratio and skimpy profits. Niles is
dubious of the claims of that industry DRAM inventories are improving much.
Niles told clients he sees scant evidence of a pickup in PC demand and that
memory inventory in the communications and networking business is "in
terrible shape."
Common wisdom is that investors should buy
quasi-cyclical stocks like Micron when industry
conditions are poor. That argument assumes that the stocks reflect weak
industry conditions. Yet Micron already discounts a significant industry
recovery, including a sharp rise in DRAM prices and perhaps $2 or more in
annualized profits per share. This suggests that absent a dramatic
improvement in the DRAM market, Micron is vulnerable. |
