Kathleen: Ever noticed that when a company MUST raise money to survive, that its quarterly report shows wondrous results? The correlation is frequently quite amazing. Few things motivate a company's accounting division to ever greater innovative heights than the threat of bankruptcy.
With respect to MU's future:
- Forget 64Mbit (or 256 Mbit, etc.), the company doesn't have the dough to build required plant, and is well behind the competition in any event;
- May well prove to be a blessing in disguise, as the demand for larger memory chips is simply not large (while supply already is), nor can one construct a heavy demand scenario from present reality;
- Company faces a deteriorating pricing environment. Supply side is endless as new fabs come on stream.
- Interest costs going forward are not insignificant and can hardly be capitalized, given "working capital" attributed use of funds;
- PC sales growth falling and PC sales points also tanking. Memory requirements no longer rising as in past;
- Korea will unload. Evidence suggests that this is already underway. They simply cannot afford to take the risk that they might be caught with very large inventories that might not move or that might need to be dramatically written down/off;
- Moving from 4 to 16 Mbit manufacture cannot be compared with moving from 16 to 64 (or higher). this applies to money, expertise, and time. MU must successfully climb a cliff as its competitors sling arrows at them from above.
- MUEI will subtract, not add to future profitability as the PC wars continue to intensify. The current round of nasty "previews" is just the beginning.
- Balance sheet is weak, and this is a "deep pockets" game. Best to view recent junk bond as a form of philanthropy.
- With sizable junk debt now in place, who really owns the company? In the absence of Kurlakian profits, those trading MU stocks are trading worthless paper. I suppose it would be inappropriate at this stage to speculate as to the true discounted value of the junk bonds, based on the probability of the principal ever being repaid, or how this might take place.
While many don't, it's useful to maintain a "commodity" perspective with respect to MU. Too many bushels of corn or bales of cotton for any producers to make money.
Best, Earlie |
