David:
I would never argue with your assertion that MUEI is a serious problem for MU,..... it is. Basically, MUEI is being eaten alive by CPQ, DELL, et al. Be that at it may, MU's memory business is also in serious difficulties, to wit:
- the company hasn't produced positive cash flow for several quarters. Profits as reported have been falling and depend on accounting niceties.
- the company has sold off assets to stay alive. There is little left that can be sold.
- the company has added a great deal of debt during the last year. While their accounting doesn't reflect it, the interest is still accruing and will need to be paid. Last year, the company enjoyed better ASP's and much lower interest costs. How is the current nastier situation going to be produce real profits? ASP's would have to rise dramatically to allow this to happen.
- Shall we have a bet with respect to SG and A? I'll bet that it does not come off in this quarter. I have in fact segregated memory related costs from PC manufacturing costs, at least to the extent that it can be accomplished, and cannot agree with your comments re MUEI's impact.
- At what point does the company re-value their inventories, and what impact will this have on their reported earnings.....oh, I forgot, this can always be handled by way of a "restructuring" charge. Ditto the white elephant.
- Payables rising is just a coincidence?
- Your assumption of a cost of $3.50 is based on??? Again, if ALL appropriate costs were added in, their cost would be significantly higher. No matter how I play with the numbers, I can't see a cost of $3.50.
- MU's "contract prices" are a joke. The spot price is the contract price, when the contract is of short duration. You are deluding yourself if you think that MU's ASP's are currently "well above" the spot price.
- Korea's need for foreign currency has indeed driven its frenetic current dumping. Unfortunately, Korea's problems remain in place, hence one should expect that unfortunate jurisdiction to attempt to sell every chip they can produce,for many months to come. If they are lucky, prices will stabilize are or close to cost of production. Prices won't climb consequentially until world-wide excess capacity is reduced one way or another. This can't occur soon, as much new capacity has, or is about to come on stream.
- The under $1,000 PC's are typically configured with 16 Mbit in place, (to keep the advertised selling price low). Most retailers will quite properly endeavour to "upgrade" the box to 32 Mbit (to either sweeten the ultra-thin margin, or to actually land the sale). Few applications can beneficially use more than 32 Mbit in any event and the add-on memory is dirt cheap. EDO is utilized in many inexpensive PC offerings these days, again to reduce the all-important price. EDO memory prices having responded to shrinking (formerly "dead") inventories levels by rising. So what. The big picture is still dominated by massive over-capacity and glut conditions. ASP's will not rise significantly until this changes.
- What happens to MU as 64 Mbit displaces 16 Mbit as the norm? Do you think that MU can compete in its production costs with the big Asian players who moved into this game at an earlier time?
In normal times, I'm typically a tech bull, and I've years of research papers to prove the point. Nevertheless, it makes no sense to me to allow a mania to colour my appreciation of fundamentals. MU will lose plenty of dough over the next few quarters (notice how First Call is adding to the forecast losses on a weekly basis). Analysts who forecast positive earnings for 1999 and beyond are plucking numbers out of the air, and provide not one single syllable in support of these questionable flights of fancy. Bluntly, they are making fools of themselves.
Stocks should be bought when cheap and sold when expensive. I say a little prayer every night for the irrational herd that provides me the opportunity to sell a stock that made $.04 last quarter, and that will lose big bucks for the foreseeable future,...... at close to thirty dollars.
Incidentally, I know many bears who have garnered quite acceptable profits from MU short positions,....several times. We will see soon enough which side derives profits from the current MU situation.
Best, Earlie |
