What a busy forum. The "Micron Only" thread may boost S.I. to 6.0 million messages before the weekend. (g)
Some comments on the quarterly report, then the TXN deal.
Earlier, I forecast a loss of $1.00 per share and I posted my reasons for so suggesting. Close but no cigar. The company actually lost $208.0 million. With 212.0 million shares outstanding, the operating loss was $0.98. Oh well. (g)
Revenues fell off the graph. Down almost 20 % sequentially and down over 35% y-o-y. What happened? ASP's tanked, the 64 Mbit crossover occurred a year ahead of MU's expectations, 64 Mbit yields suck, the PC market is saturated, Asia is buying nothing but rice, and world-wide memory production does a "Duracell bunny" (keeps on growing and growing and......). So let's just scratch the growth multiple idea, in spite of the dreams of analysts who never leave their offices. Declining revenues do not a growth company make, even on Wall Street.
Cost of goods sold as a percentage of revenues rose dramatically. This quarter, it was 99% of revenues (yuk). Last quarter it was 70%. A year ago it was 68%. Remarkable progress. Do we need calculators for this math?
Operating profit comes in at minus $172.3 million, plus the tiny inventory writedown of $30.0 million and voila, a loss of $200.0 plus million......in one quarter.... just a measly $2.0 million a day, so not to worry. What a great business.
The company doesn't even reference its inventories, (nor do I blame them), so we don't know for the moment how much product got stuffed this quarter. Inventories stood at close to $450.0 million last quarter, (75% of this quarter's sales!), booked at cost of production, which means it's really worth a fraction of that figure and must be written down at some point. Shall we bet on (a) how much got stuffed, (b) what it's really worth and how much of the company's past "profits" are really inventory chicanery? Holding back product is a mug's game and slease-ball accounting.
Cash evaporates. Down over $100.0 million this Q.
Interest on that $500.0 million debt offering of last year is being deferred, but it still accumulates. You can run, but you can't hide. Now where do we find that dough when we need it? You have to love compounding interest. The rating agencies understand it and whacked the company's paper accordingly.
One could go on and on, but let's just put this quarter's report into context. They're losing bags and bags of money every day, the losses are accelerating and there is nothing on the horizon that suggests this will change.
The deal is distasteful surgery of cancerous body parts for TXN and MU has made a meal of the offal. TXN has been aching to exit memory but alas, no buyers. The company saves a bit of face by pretending to "sell" the business, when in fact they paid dearly to have it hauled away. If TXN's management is wise, they will do as SB suggests and blast their MU stock out the door as quickly as possible (think of it as a 12% block of stock now over-hanging the market), as a means of regaining a portion of an obvious future writedown. While they may carry the MU debt on their books for a while, having been in the business they know how ugly the business is, hence they will have already written it off in their minds. MU in its wisdom takes on additional plant and capacity in an industry that is suffering specifically from over-capacity. Brilliant. Now the company can sell much more product below cost and lose money at an accelerated pace. As has been pointed out, this deal was done to grab the cash. Yes it does add a quarter or two to MU's life, but it's debt that will never be serviced, never mind be repaid, and it stands in front of the common shareholders if the company ever makes any money in any event. The provided cash will disappear quickly (losses, plant renovations, learning how to deal with offshore subsidiaries, etc.) and the debt holders will fight over the remains. No wonder the rating agencies acted so quickly and no wonder TXN allowed that the debt paper might be worth a bit less than face value in a trading environment. (TXN will likely dump the debt paper as soon as possible).
Already the street's spin artists are trying to apply the cosmetics, but it won't be easy. MU has effectively become TXN's garbage can, and there are some nasty bacteria swimming around in the acquired trash. Why take on another mothballed plant (Richardson) when you already possess a similar white elephant. Book-ends? Why take on aging wafer capacity? Why take on plants in Asia as Asia melts? And above all else, why add to the expense line when you know it won't add to the profit line (and you're already in survival mode)? This deal will very quickly add misery to an already burdened company.
Best, Earlie
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