GM and All: Montgomery DRAM report. Stabilization achieved (for now at least):
NATIONSBANC MONTGOMERY***NATIONSBANC
MONTGOMERY***NATIONSBANC MONTGOMERY
MICRON TECHNOLOGY, INC.* RATING: BUY
July 9, 1998 SEMICONDUCTORS NYSE: MU
Jonathan Joseph, CFA (415) 627-2925 First Call
Claude Hazan (415) 627-2845 DJIA: 9174
S&P 500: 1166
NMSGI: 127
PRICE: $27-1/4 FY ENDS 8/30 1997 1998E 1999E
52-WEEK RANGE: $60-20
FULLY DILUTED SHARES O/S: 212.3 MM Q1 (NOV) $0.10# $0.04 ($0.22)
MARKET CAPITALIZATION: $5,785 MM Q2 (FEB) 0.18## (0.23) (0.05)
AVG. DAILY VOL. (3 MOS.): 3,270,246 Q3 (MAY) 0.44 (0.50) 0.11
SECULAR EPS GROWTH: 15% Q4 (AUG) 0.33 (0.50) 0.31
CY98E REVENUES: $3,040 MM FISCAL YEAR $1.05 $(1.17) $0.17
MARKET CAP./REVENUES: 190% P/E 26.0 NM N/M
5/98 LT DEBT: $718 MM P/E/G 173% NM N/M
5/98 LTD/TOTAL CAP.: 21% CALENDAR YEAR $1.00 $(1.44) $0.73
5/98 ROAE: -2% P/E 27.3 NM 37.3
5/98 SHAREHOLDERS' EQ.: $2,774 MM P/E/G 182% NM 249%
5/98 BOOK VALUE/SHARE: $13.07
DIVIDEND/YIELD: $0.20/0.89%
# Not including one-time gain of $0.03.
## Not including one-time gain of $0.48 (MUEI shares)
* NationsBanc Montgomery Securities LLC was manager or co-manager of a public
offering and/or has performed investment
banking or other services for this company in the last three years.
Survey of DRAM Vendors Positive
We spoke this morning with three large DRAM vendors and found all of them telling
the same story:
demand in recent weeks has picked up, which could result in flat contract prices going
forward, a
plus for the DRAM industry specifically and Micron Tech in particular.
All the companies recorded a pickup in June. One top Korean firm was 15% above
June's plan and
substantially above May's. On a unit basis, June was its best month ever by a wide
margin. The
company entered July with orders still on the books, for the first time in three years.
Another
Korean firm recorded a 30% unit increase in June over May. And a top U.S. firm just
yesterday got
two huge orders from large OEMs that were 2x the amount of product they shipped to
these top-tier
companies in the second quarter. Most of this strength is in the U.S. market.
The top and bottom of the DRAM market seems to be tightening. We have gotten
numerous
reports over the last week that PC-100, 100MHz 64Mbs have inched up in price in the
spot market from a
dead low of $7.50 to around $9.50. This is partly because of higher shipments of
Pentium II 300MHz and
above, but also because many DRAM firms are not yet able to manufacture the
PC-100 standard in
volume. Micron claims greater than 70% of its current wafer starts are PC-100
complaint. In
addition, the low end of the market has firmed up as stronger Workstation and Server
demand has called
for EDO 64Mbs.
At the margin, we see this strong pickup in unit demand as a plus for the whole industry.
It supports our thesis that the PC market will improve in the second half, which is
necessary to absorb
excess DRAM capacity. One broker went out with the call this morning that Samsung
would soon raise
prices. Rather than raise prices, we believe the impact will be for firmer, and flatter
prices for DRAMs in
coming months, a plus for all players though not a prelude to a dramatic turnaround in
profits.
The U.S. International Trade Commission recently pushed out by two months its
announcement of
final tariffs on LG Semi and Hyundai for dumping DRAMs in the U.S. from March
1996-97. There is still
speculation tariffs may be accompanied by retroactive penalties. Industry buzz is betting
Hyundai gets
off easy, but that LG Semi (which may merge with Samsung) will be stung hard.
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