zeev, first of all, i would agree that this deal was the best thing that mu could do. i don't see any other better options. for that, they s/b commended.
however, your premises are not necessarily true. first, you don't have a clue what and where dram will be in 5 years. not one clue. neither do i. nor does anybody. you can assume that it will be like today but that is an assumption that will could be proven false over time. easily.
will mu survive? you don't know they will. they probably will. i could concur with that. but, they might not. mike pointed out they lost $280 million in cash last q (the company admits to $200 million - what is 480 million between friends? ;-). tell me zeed, can you guarantee that mu can lose this amount of money per q for 2 more years and stay in business?
essentially you have. either that or you are guaranteeing that this glut won't last 2 more years. oh, and add over 50%++++ (since mu is so much more efficient ;-) to their burn rate cash now that they have added these current liabilities that will eat cash to become slightly less behind the curve. they ARE liabilities NOW. they MAY become assets LATER. tbd.
btw, IF y2k eats into mis budgets more than expected you better believe that other parts of the mis budget will be cut back. computers, zeev. business box growth could turn into implosion. is this good or bad for mu? this will last through and past 2000, zeev. can mu if this is the prevailing market condition?
also, nothing like the possibility of poor earnings cutting back on mis budgets. never happen, right zeev? maybe, maybe not. japan is in recession and american companies are warning more than in recent history. the trend is defginitely in the wrong direction. would a poor economic environment be good for mu, zeev? how long could that last?
reducing costs in dram means increasing output. everyone is "reducing costs." it also means everyone is "increasing output." that is why this glut situation is not easily solved. mu, and everyone else, decreases costs and together they all kill pricing. 2 snickers or a 16 mb chip, zeev? take your pick. ;-)
pricing is much worse this q than last q. say good bye to more than $280 million in cash this q also. they are probably near another $100 million in losses so far this month. didn't i read they only had $300 million in the semiconductor kitty w/o the ti deal? hmmmmmm...
many companies that have a better chance of survival than mu trade in single digits or the low teens.
as for the next up cycle, nobody will be caught unaware as they were before. greed is the name of the game now.
even if it were big and lasted for 5 years mu will still be only 2 bad qs away from bank defaults and possible insolvency 3 qs out if history repeats itself.
mu made a great move to stay alive that also may pay off by prolonging their life in a killer industry where it is almost impossible to generate free cash flow. great move in a bad game. a very bad game. i don't assume polyana conditions when investing in a company as many seem to do. that is why i'm still net negative on mu at current valuations.
mu ought to come out of this glut with maybe $3 - 4 billion in debt (including $300 million in interest per year), a drastically reduced share of muei (yes, they will have to sell it off to stay alive) and with competitors that are ready and waiting with better technology. 1991 through 1995 is HISTORY. there is no more reason to believe that the next up cycle will be more like that one than different from it. in fact, this one may be totally different. just like this glut is totally different than those that proceeded it. different dynamics are at play today than ever before. different dynamics equal different results.
at best, the up cycle magnitude is a big question mark that needs to be discounted, imho. it isn't.
when it is then i'll be more positive about mu.
jmho. good luck. |
