Boy, RtS, you really have a negative view of Micron! But I think it is still shared by a lot of people. IMO, they are going to be surprised on the upside again this quarter, although it is difficult to forecast it with any certainty due to all of the moving parts connected to their ongoing restructuring and purchase of Elpida. They are getting a billion dollars in cash with Elpida. They are also getting about $1.3b in debt, but that debt is zero percent interest debt, to paid in yen once a year through Elpida's own profits. If Elpida doesn't have enough profit to cover the debt, they don't have to pay it that year (although it isn't clear to me if it gets rolled into the next year's payment or not, or forgiven). As long as the mobile business continues to do well, Elpida should continue to do well--they have been making money the past two quarters, and should continue to do so (the arrangement is that Elpida sells their output to a subsidiary at a cost-plus rate that was set up to receive it, then Micron sells that output--once the subsidiary has enough to pay down that year's payment, Micron keeps the rest as their own).
It was a very good deal for Micron, RtS--that is why the stock has been going up since March, when the Japanese courts dismissed the lawsuit that was trying to change the terms to be more favorable to the creditors. Micron bought the company when DRAM was pretty close to its nadir, and Elpida might well have gone out of business. But after the agreement was reached, Apple substantially increased its orders to Elpida, taking business away from Samsung. And rumor has it that they will increase their orders to Micron still more when they increase their capacity with conversions of some of their DRAM wafers to NAND (which they have begun), and Micron can actually handle more orders.
Right now, at least, they are selling as much as they can make. And most of it at decent positive margins. Even with PC sales in the dumpster, PC DRAM is profitable because so much capacity has been diverted from it to mobile DRAM or just plain shuttered because it was made with old equipment and wasn't competitive any more. Some analysts have said that Windows 8 has put PC sales on hold, they will pick up once the new Win 8 is out in early Oct 1. And that there is a lot of pent up demand for new PCs now. Hopefully, from Micron's POV, outfitted with SSDs, but even if they come with HDs, they still use a lot of DRAM.
As you can tell, I am still bullish on Micron. I sold a few of the calls I bought last week just out of prudence, but still have most of them, as well as the outsized position I've taken in the past--stock plus a few hundred calls that won't expire until Jan 2014 and 2015. I think that the current estimates aren't fully in the stock yet, and think that those estimates will be raised again--probably some raises over the next week or two, but mostly after the report their Q4 at the end of Sept or early Oct.
All that said, I always look for what I am missing. So -- I was wondering, do you have any reason aside from historical precedent to be bearish?
Regards,
Sam |
