bp,
Here's the article from thestreet.com, go to the link and they'll give you two weeks free.
John
Herb on TheStreet: Are DRAM Prices (and Micron) About Ready to Take a Hit?
By Herb Greenberg
Senior Columnist
11/13/98 6:30 AM ET
Prices of DRAM memory chips, as well as the stock of memory chip maker Micron (MU:NYSE) and the chip-equipment makers, could get whacked in coming weeks as Korean chip makers come off a self-imposed slowdown by flooding the market with product.
The Korea Herald, which is largely overlooked by U.S. investors, reported yesterday that Samsung Electronics, Hyundai Electronics and LG Semicon -- Korea's big three chipmakers -- have resumed full production in response to a steady climb in the price of 64-megabit chips. The new supply of chips should hit the market within four weeks, just as the industry goes into a slowdown.
Chips prices rose from around $7.50 in June to roughly $10 today on fears of a shortage, thanks in part to the Korean slowdown. Micron, in fact, has been saying that its chips are on allocation. And the rising chip prices have been a key factor behind the doubling of Micron's stock in the past two months.
With demand and supply coming back into sync, according to the newspaper, the Koreans figured it was time to rev up their fabs, which had been operating only three weeks every month. Merrill Lynch analyst Paul Kim on Thursday warned of falling DRAM prices.
Micron officials couldn't be reached, but one analyst that has talked to the company says its response was that it is sold out for the rest of the year.
With more supply coming online, one thing seems clear: It won't be sold out for very long.
Short Positions
Coffee klatch: Starbucks (SBUX:Nasdaq) met analyst estimates for the fourth quarter yesterday, but some skeptics believe the company would've blown the numbers if it hadn't been for a lower than expected tax rate and -- more importantly -- what appears to have been a one-time payment from Kraft, a unit of Philip Morris (MO:NYSE).
Kraft struck a deal with Starbucks shortly before the end of the quarter to distribute its coffee to supermarkets. When the deal was announced, Starbucks refused to discuss any terms of the Kraft transaction. Since then, the stock has risen more than 25%.
But in a conference call with analysts yesterday, the company conceded that its "specialty sales" got a boost from an initial licensing fee paid by Kraft. The company didn't disclose the amount of the gain, but sales of specialty products came in at 19% of sales, rather than the 14% analysts had been expecting. The difference, analysts say, translates into several pennies on the bottom line.
A tax rate that was 34.7% instead of the expected 38.5% is good for another couple of cents.
In other words, the company's regular business didn't meet expectations, and from an earnings-quality standpoint, Starbucks appears to have been a tad too heavy with the sugar. That's not good for a stock that trades around 40 times this year's expected earnings. Says one short-seller, "You pay big multiples for predictability, not for management to guide you to the right, and then go to the left."
Starbucks CFO Michael Casey, in an interview last night, said the lower tax rate was the result of a complicated calculation geared at bringing the full-year tax rate down from 38.3%. He also confirmed the Kraft licensing gain. But he cautioned that it would be a mistake to extrapolate the actual amount of the fee from the difference in what analysts may have expected from specialty sales and what the company actually reported.
Why didn't the company disclose at the time of the Kraft deal that there would be a one-time gain? "That's a fair question," he says, "and I don't have an answer."
Scuttlebutt: The question surrounding Smart Modular (SMOD:Nasdaq) these days is whether Compaq (CPQ:NYSE), which comprises half its sales, is considering taking its business elsewhere. Short-sellers have been buzzing with the speculation in recent days. They note that Smart Modular, which makes memory chip modules for PCs, has been buying its chips from a unit of Texas Instruments (TXN:NYSE) that has since been bought by Micron Technology.
If Compaq bought directly from Micron rather than Smart Modular, the shorts say, it could wind up with better pricing and availability -- especially when supplies get tight.
A Smart Modular spokeswoman declined to comment, saying only that the company's relationship with Compaq remains strong.
And Kevin Dunn, an analyst at BancBoston Robertson Stephens, says the speculation is nothing but "another short story" that is groundless. If anything, he says Compaq may decide to second source 15% or 20% of its chip business to someone like Micron. The shorts, however, are betting it will be the other way around, with Smart Modular, at best, becoming the second source.
So goes that story.
Finally -- more razor burn: The verdict is in with my long experiment using the Gillette (G:NYSE) Mach3. Right out of the box it's fabulous, but after two shaves, my razor consistently started losing its punch.
I tried keeping the blade in alcohol overnight to lengthen the use, but it was simply too much of a hassle. (And besides, the use didn't improve that much.)
So, until prices of the Mach3 blade fall to a normal range (I'll havta check at Costco (COST:Nasdaq) next time I'm there) it's back to the Sensor Excel for good. Some of you have suggested I try the Schick (SCHK:Nasdaq) Protector. I might just do that and, if I do, I'll give ya the results.
Boring and wrongheadedly yours,
hg
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