Skeeter,
Just got back from reading Dan Niles latest comments on MU (sorry the Robbie Stephens site is password protected but email me if you're interested) and it's very clear that you nailed it on the head. Niles doesn't publish on MU that often. That plus the wealth of detail in his report that could only come from management make it clear that the Boise slime are oozing the gory details out to the select few. Remember I said a couple of days ago that Niles would be reducing his estimates but maintaining his buy rec? Well, I got it wrong!!!He reduced this quarter to (.47) from (.31) ... he reduced this year to (1.20) from (.75) ... he even reduced next year from 1.05 to 70 cents .... but he raised his recommendation from long-term accumulate to buy ... yahoo!!!!! ..... because ... hey, it's only an inventory correction.
Lots of interesting stuff in this report ...
Testing bottlenecks have been alleviated and additional test capacity will now only be needed (these analysts have a wonderful way with logic) in Lehi at the end of calendar 1998/early 1999. This confirms the Utah paper report that DJ posted.
64 Mbit production was 2.2 million units for all of the Feb. quarter and ramped to 3 million in the month of March. Currently, 60% of wafer starts are for 64 Mbit devices on a .25 mu process.... (back in March the analysts were saying 64 production should be at 16-18 million units by the August quarter. If the March run-rate was 9, then I would guess this means MU's on track with their plan)
They will start .21 production by by the end of August with 10-15% of production on this process by calendar year-end ... (this looks like a pullback from what they indicated in March. At that time the goal was a majority of production on .21 by the end of '98 ... suspect this, like the sudden discovery that they don't need more test capacity, is driven by their reduced capital spending plans)
And now the bad news, as Mr. Niles would say ...
Inventory has built up to 4 1/2 weeks versus 3 weeks in the Feb. quarter ... due to weak demand (remember when the problem was a test bottleneck??) .... what Dan appears to be saying is that inventory has increased by 50%. This is, to put it mildly, a shocker. Chip sales in the last 4 reported quarters (from Q3 last year) have gone $454 million to $433 to $396 to $261 million. Inventories on the other hand have gone from $289 million to $339 to $351 to $393 million. And now they're up another 50% to close to $600 million?? If true, this is definitely a shocker ... Skeeter you better start measuring it in Titanic equivalents. These guys have hit an iceberg and instead of reacting they're going 'iceberg, what iceberg?'.
Cash ..... Mr. Niles reports it is expected to decline from $935 million to $700 million ... erhhh, $235 million. He doesn't deign to discuss debt so we don't know what the net decline in cash was. I wouldn't rule out your $400 million number yet Skeeter. What he does say is very interesting... " We would remind investors that MU currently owns 64% of MUEI, which has a market value of $1.1 billion, so we do not believe that liquidity is an issue." If we assume that Dan is just regurgitating management's comments (a pretty safe bet), then this comment about (ahem) 'liquidity' is coming from them. Which means people are concerned. Now if I was Mr. Capital Research and long 30+ million shares this might ring some sort of distant alarm bell. Especially if I looked at their real cash position (net of debt and minus MUEI's cash) ... negative $223 million last quarter and what? negative $458 million this quarter?? Those 61 million shares of MUEI don't start to look so hot. Funny how Dan threw out that $1.1 billion number ... they actually only own 64% of that ... won't even get into how much they'd get for it in a fire sale.
Gross margin on DRAMs ... is expected to be negative this quarter. The known universe's low-cost producer can't cover their costs of production, let alone SG&A and R&D. The more they make, the more they lose. Gross margin in the last 4 quarters has been 49%, 44%, 32%, and 5% ... will be negative this quarter and I bet that's not even valuing inventory at market but rather cost. These guys obviously don't subscribe to Larry's view that DRAMs are like milk on the shelf ... you don't want to keep it long.
Capital spending ... $800 million this year (March confercall they said $800-$1 billion) and $500-$600 million next year. So at the bottom of the cycle they have no choice but to cut back to bare bones spending ... OK, hot stuff in Boise, go get 'em!!!!!
regards, Mike |
