In trying to analyse the earnings of past quarter, let us not forget how the whole mess has occured.
(1) The Koreans control 43% of world DRAM market. They have been selling the DRAM at any price, to capture market share. Micron is the most cost efficient producer of DRAM, but Koreans have been under selling them at loss. To cover the loss, they got money from Koreans banks, with blessings of corrupt Korean Govt. That Dog and Pony show has come to an end.The Korean banks borrowed from abroad to feed these insane chaebols, but even the Korean banks are empty now. How do the Korean chaebols continue their insanity to sell DRAM and Disk drives at huge losses to capture market share ?
In last two weeks, Koreans have been dumping the DRAMs in inventory at ANY price to raise cash. They need the money badly, but the banks that fed their losing venture are empty. Their inventories are about to dry up.
As soon as the Korean Presidential Election is over on 18 Dec., Samsung, Hyundai and LG will be forced by IMF to adjust their prices to make profit. Now with their foreign debt being even higher and IMF dictating, they have no alternative but to raise prices and/or cut production. Do you think IMF and US taxpayers will keep on feeding them billions of dollars to continue their insane losing ventures?
We all know how volatile memory prices are ! As soon as these measures are announced and Koreans are forced to use common business sense, memory prices will go up. The airlines learnt hard way, how not to cut each others' throats to make profit and good business. Airlines are doing excellent now, putting profits before "market share". I hope the Semiconductor industry and their lending banks learn their lessons from this Korean debacle. That would transform all of semis into consistent, reliable money making businesses.
In my analysis, it is very creditable for Micron that they increased their sales by almost 30% in dollar volume, with prices dropping by 25%. I am surprised that Micron receives no credit for this very noteworthy development.With the costs being fixed to going lower, higher memory prices would translate into much better profit.
Just as it was irrational in 1995 to take the stock price to 94, based on July 1995's DRAM price and project it to happily ever after, it is equally irrational to assign value to Micron, based on today's totally insane DRAM prices, courtesy of dumping by Koreans. The Korean show is over my friends!
Give some credit to Micron! At these DRAM prices Koreans bankrupted the country, Micron made few pennies!
Bharat H. Barai |
