Tom, we will probably know better tomorrow. MU Book is now around $11, and thus I am lowering my target to 1.5 book or $16.5/share, not too far from the original "forecast" of $19. We may not get there for the simple reason that, IMTO, we have reached right now a major bottom in the market in general, probably, after some early selling tomorrow, we may rally to about $25/$26, and then we may retest later (December?) and even breach $19 (a slump to $16.5?).
I am concerned that their inventories are more than 3 months sales. On the other hand, their receivable are only 45 DSO (the $790 MM receivable includes $560 MM of tax refunds, not customers' receivable.). The fact that they invested $1.5 B in capex this year and still are planning to invest $1 B next year, is actually positive, since that helps them keep up with Toshiba and fully convert to .13 microns. Mind you, their capex next year will be smaller than their depreciation next year (which I estimate at at least $1.25 B). The big problem is that they must double their sales to just cover cost of goods, and that is a tough nut to crack unless memory prices increase some in the near future. Contraction of worldwide capacity might be some help there.
Zeev |
