Contrary Indicators Include Negative Front Page Stories like this one on Micron from home town Boise:
Downturn takes toll on Micron
Stock prices dip; analysts expect big annual losses
idahostatesman.com
Shares of Micron Technology Inc. traded last week at a four-year low, dropping below $14 a share — the lowest levels investors have seen since 1998, when the company was half the size it is today.
The Boise semiconductor company, the state´s largest private employer with about 11,500 workers in the Treasure Valley, is scheduled to report annual earnings Tuesday. The company, which makes memory chips for the electronics industry, is expected to announce huge losses for the 2002 fiscal year that ended in August.
While the stock held up well through 2001´s record losses, trading in the mid-$30s or $40s most of the year, prices have dropped into the mid- to low $20s through this summer.
During 2000´s booming economy, the stock rose above $100 and had a 2-for-1 split.
The stock closed Friday at $13.87, its lowest point for the week.
“What´s going to hurt is if losses are more this year than last year, because the industry did a bit better this year,” said industry analyst Matt Godfrey, with Semico Research Corp. in Phoenix. “I think that´ll impact the stock even more.”
A survey of 14 analysts by Thomson Financial/First Call — a global research network that analyzes most major world markets — found an expectation that Micron will report greater losses next week for 2002. Those analysts expect a loss of 72 cents a share, compared to 68 cents a share last year.
The share price is at the lowest since Micron bought Texas Instruments´ memory operations in 1998 and expanded its operations worldwide. That year also marked another industry downturn for semiconductors.
The outlook for the near-term isn´t much better. Micron makes memory chips that are primarily used in personal computers, and the Christmas selling season is traditionally the high-point for computer sales. Electronics retailers, however, have expressed concern in recent weeks that weak consumer confidence may affect holiday sales.
“There´s still a tremendous amount of uncertainty in the market,” said Micron spokesman Sean Mahoney. “It would be imprudent to speculate on what the holidays will do. We´re doing everything we can to control our costs, which is as much as we can do in this environment.”
“We are experiencing one of the worst, if not the worst, downturn in the history of the semiconductor industry,” Mahoney added.
The memory industry worldwide had revenues of $28 billion in 2000, but sales dropped by 60 percent in 2001, leading to a flurry of companies consolidating or exiting the business. The industry is expected to grow slightly for 2002, with about $16 billion in sales, still far below 2000´s peak number.
“We don´t forecast getting close to 2000 revenue levels again until 2006,” Godfrey said.
Industry analyst Dan Scovel said recovery will come to the industry, and therefore Micron, when rival Hynix Semiconductor closes or sells. Korea-based Hynix, the world´s third-largest memory maker, has been foundering in debt and has been the subject of several government bailouts. Micron, the second-largest memory maker behind Korea´s Samsung Semiconductor, attempted to buy Hynix earlier this year, but the Hynix board rejected the $3.4 billion offer.
Hynix is in the midst of a reorganization, received a new board of directors this summer, and is contemplating whether it should pursue a sale or continue on its own.
Without Hynix, the world´s supply of memory chips would be greatly reduced, analysts say.
“What we´re hoping for is that Hynix would go away sooner rather than later,” said Scovel, with Needham & Co. in New York. “Micron´s going to have a tough time restoring profitability over the next couple of quarters because Hynix is going to be around a couple more quarters.”
Godfrey said the depressed stock market also plays a role.
“A lot has to do with perception,” he said. “The stock market is not doing as well as everyone expected, so it feeds into corporate America not wanting to spend or hire. It becomes a self-fulfilling prophecy, because if they´re not hiring, they´re not buying new computers, and demand for Micron products stays low.”
More than 75 percent of Micron´s shareholders are institutional investors.
The financial community has responded to glum industry reports. On Friday, Bear Stearns cut its estimates of Micron´s future earnings, saying there was evidence that demand would stay low for another six months. The firm believes Micron will be slightly profitable in 2003, with significant profitability returning in 2004.
And even before last week´s price drop, three analysts downgraded Micron´s stock in August:
• Morgan Stanley downgraded it from “equal-weight” to “underweight.”
• Gerard Klauer Mattison downgraded the stock from a “buy” to an “outperform.”
• Wedbush Morgan downgraded it from a “buy” to a “hold.”
While Micron is overall rated a “buy” from Thomson Financial/First Call´s group of analysts, it´s clear they consider the memory industry to be troubled.
Micron Technology has been on a credit watch by Moody´s Investors Service since its last earnings announcement in June. The lower a company´s credit rating, the higher the interest rate it is charged for loans.
Moody´s cited concerns about ongoing losses and cash consumption and also expressed concern over a U.S. Justice Department investigation surrounding allegations of price-fixing in the DRAM industry.
Yet analysts still believe Micron is more likely than most of its competitors to withstand the downturn.
“These guys are tough,” Scovel said of Micron management.
Noted Godfrey of Semico Research: “I think they´re doing all the right things, and they have the right product mix. I would like to just say, ´Don´t worry about them,´ but there´s only so much money in a bank account. Still, I wouldn´t write Micron off.”
These analysts said they believe Micron will do well in the future also because the company continues to invest in research and development and continually improves its process technology for making memory chips less expensively.
The company has been an anomaly in the technology industry by refusing to lay off workers to cut costs. Micron Chairman and Chief Executive Officer Steve Appleton has given up his own $800,000 salary and reduced executives´ pay by 20 percent as long as losses continue. The company has made other belt-tightening moves throughout the organization.
Of course, while current investors groan at falling stock prices, others see them as an opportunity.
“You are buying the assets of this business at the least expensive price that you would have been paying for the last four years,” said Bill Dezellem, chief investment officer with Davidson Investment Advisors in Great Falls, Mont.
Dezellem´s firm, which carries Micron stock in its portfolio and rates it as a buy, touts the stock as a good investment.
“I have no idea how much lower the price might go,” said Dezellem. “But the underlying fundamentals say there´s a lot of money to be made in this company long term. This is a real company in an industry that´s not going to go away.”
One thing is certain: Micron´s stock, known for dramatic swings, will likely continue to be volatile as the memory-chip industry goes through its normal cycles.
Before a recovery for the chip industry´s downturn has even occurred, analysts are already forecasting the next low.
“We think the next slowdown will be in 2005,” said Godfrey, but that will be followed by a strong rebound in 2006.
To offer story ideas or comments, contact Julie Howard
jhoward@idahostatesman.com or 373-6618
Edition Date: 09-22-2002
Thanks for the link Gottfried. Over the years I have kept an eye on front page news especially lead stories for MU. It seems that when the news gets bad enough to merit the headline on the front page at least temporary bottom will be found for the stock.
We will have to see if this trend holds this week but I think it will.
RtS |
