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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 151.94+1.1%3:59 PM EST
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To: Will Lyons who wrote (10035)8/28/2001 9:17:14 AM
From: Terry D  Read Replies (1) of 10921
 
Bear gets bullish on demand -

We believe MU has seen a slight improvement in DRAM demand in the last few days. This is consistent with other anecdotal information we have heard in the last few weeks indicating an upturn in bookings for other PC components. Since DRAM is the last device to populate the motherboard and DRAM lead times are essentially zero, they are the last device segment to see the demand upturn. We have also heard from broker contacts that MU is raising DRAM prices lightly, and that brokers may be accumulating inventory in anticipation of further price increases. This may be a reflection of anticipated improvement in PC and DRAM demand later this year, and the idling of capacity by several DRAM vendors as prices have hovered below variable cost for several weeks. We are seeing a very small price movement that is difficult to call it a trend at this point. However, we have seen some significant bookings activity in other PC device segments, including microprocessors, chipsets, clock chips, super I/O controllers, disk drive components, and modem chipsets. The beginning of an upturn in DRAM demand is a logical extension of the activity we have seen in other sectors. We believe the DRAM industry continues to undergo consolidation in response to the worst pricing environment we have ever seen. The current spot price of $1.40 - $1.60 for 128M DRAM is below the variable cost for most DRAM vendors with the possible exception of MU and Samsung. The recent slew of plant shutdowns is indicative of the extremely difficult pricing environment, and could cause a supply squeeze to develop if demand for DRAM picks up suddenly.

The overhanging risk to the positive order trend that seems to be developing is an uncertain PC market. The back-to-school pick-up has been weak, and PC OEMs are implementing aggressive price cuts and promotions to stimulate demand. We obviously need to see a modest pick-up in PC demand over the rest of the year to sustain the current bookings trend. We believe MU is an excellent play on the PC market recovery with huge leverage. The stock is currently trading substantially above its trough valuation of about $22 (2.5 times LTM revenue) but has substantial appreciation potential to our 12-mo. target price of $55 (7x C02 revenue). We would be buyers of the stock based on the
potential for a DRAM market recovery.
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