Headline: Micron Technology: Price Pop Pops (LEHMAN 1/9/98)
** I CAME IN TO THE OFFICE PREPARED TO UPGRADE MU, BUT INSTEAD... ---------------------------------------------------------------------- DRAM PRICES FLAT LAST NIGHT. All varieties of DRAMs were flat last night ending a 2 day 25% upsurge in 16 Mbits which had shown some faint signs of lifting 64 Mbits too.
WHAT HAS SENT PRICES UP? 3 explanations: 1) Demand resurgence, 2) Korean's experienced XMAS distress (must have cash but no customers available) which has subsided (still need cash but at least some customers are now available for business), 3) Korean's unable to package chips because Japanese suppliers (Sumitomo?) unable to get letters of credit to ship supplies to packagers (Anam?).
I CAME INTO THE OFFICE PREPARED TO STEP ASIDE AND LET THIS FREIGHT TRAIN OF RISING PRICES PASS. IT SEEMED WISE TO MOVE TO A 3 NEUTRAL STANCE ON THE STOCK UNTIL WE HAD A BETTER GRIP ON THE PRICING ISSUE. After all, of the 16 chip stocks I cover, MU is 1 of the 5 selling at record low relative sales and book value multiples. During the next 2-3 years, a move up to $75 seems reasonable as its position of low cost producer of high growth DRAMs is better appreciated (i.e. once MU makes good money again). So why grind an axe on poor near term prospects and unrealistic consensus EPS projections if near term prospects are suddenly more positive?
INSTEAD, FOR THE MOMENT WE ARE GOING TO STICK WITH A SHORT TERM CAUTIOUS VIEW AND LEAVE OUR 4 RATING FOR INVESTORS WITH A NEAR TERM HORIZON. Other memory issues (ALSC-$5 7/8-2, IDTI-$10 7/16-2) seem to have substantially better demonstrable value (ALSC) or are much better poised for diversification into high value added proprietary products (IDTI). Meanwhile, DRAM PRICES LATE LAST NIGHT TURNED FLAT.
IF WE GET ANY FURTHER NEWS OF MORE DRAM PRICE HIKES, PARTICULARLY ON 64 MBITs (WHICH HAVE BEEN RELATIVELY FLAT/DOWN THROUGHOUT THE PAST 2 DAYS) WE WILL TURN MORE POSITIVE ON MU AND REMOVE OUR SHORT TERM CAUTIONARY 4 RATING. But not yet. Yesterday we indicated the move in DRAM prices could send MU immediately up to $30, and, by day's end, it seemed like a move beyond that level was possible. As of now, we think the stock may open with another 1-2 point pop but then settle back down into a $27-29 range awaiting more insight today on pricing trends. We continue to think EPS reports next week will generally be poor and give an opportunity to better come to grips with the pop in DRAM pricing during the past 2 days. |
