Thread, thought I would post this message that I placed on the MU thread for the benefit of someone who was trying to understand why techs were so strong today.....
Skeeter-bug, let's have a look at exactly why MU is up shall we?
1) We are starting to see signs of an end to over-supply in DRAM markets. In fact the change is being driven by the hitherto over-ambitious expansion plans of the Koreans. They are cutting back their capex by 70% this year. They are also cutting back their 16meg production levels, as are the Japanese. At the same time demand is growing constantly and we will soon find ourselves in a situation where demand soon outstrips supply.
Now even if this supply/demand bit cross over does not happen until 1998, there are plenty of customers that will see that coming and they will begin increasing their orders to chip companies for DRAM before the fundamentals reassess themselves. You know, just so they can lock in some low priced inventory before prices begin to rise. This phenomenon occurs from time to time and is only temporary - the question is do you want to be short this stock when it occurs? It manifests itself in surging DRAM prices - look to summer 95 for the last time it occured.
2) the real reason that MU was up today (don't believe what you read in the financial wires) was that the front page of the Nikkei Shinbun in Japan ran an article stating that Hyundai Electronics will stop producing 16meg DRAM from February. May not seem much, but remember that Hyundai produces some 20m units/month of 16meg. Did you know that is some 15% of total global production? If that were to suddenly disappear, well - you could imagine what that would do to DRAM prices, and it would not be down! Naturally, Hyundai has denied this (after the market closed today), but where there is smoke there is fire. The Koreans do not have enough forex to procure the raw materials for such production quantities currently, so they accelerate the move to 64meg. All to the benefit of 16meg prices and to Micron's bottom line.
I suggest you look around you at the changes in fundamentals, it is a much more civilized and ultimately profitable approach to investing. ;-)
PAinvestor |
