My two cents on Micron's longer-term prospects (i.e., let's forget for the moment the day trading, the fluctuations in the Dow, the Asian crisis, Iraq, Lewinski, et. al.):
Imagine a memory chip company that is the dominant manufacturer in the world. Imagine that they have more market share than any other competitor, and imagine that they are the low-cost producer in what is arguably a commodity market. Imagine that the world is continually demanding more and more semiconductor memory and that this demand is supporting reasonable pricing levels (of course they will be dropping over time; just not as quickly/precipitously as they did until earlier this year.) By current equity research estimates, over the next several years, PC shipments are anticipated to grow more than 20% per year, with the DRAM content per system expected to grow by more than 50% per year. This works out to 80% growth in memory content each year just for PC's.
Imagine that back at the end of 1995, this company had a market capitalization that justified a stock price in the low $90's range. Imagine that by comparison, today they are a much stronger company both operationally and financially. Imagine that this company is capable of making the capital equipment investments necessary to move--in the near future--to the .18 micron process level and below. (Moving to smaller processes enables chipmakers to squeeze more saleable chips onto a given wafer, the bulk of whose extra revenues go straight to the bottom line--i.e., the extra revenues translate fairly directly into profit.) Now imagine that this company's Japanese competitors are holding back from making these investments and are doing whatever they can to get out of this horrifically competitive and loss-making market to focus on what would be for them higher-margin businesses. Further imagine that Korean competitors are having a tough time finding the cold hard cash (read: "dollars") necessary to buy much new generation process equipment. It doesn't take a great leap to see that our "imaginary" company is well-positioned for the mid-term future when the fruits of their investment start kicking in.
(By Micron's estimates, worldwide investment in DRAM capacity in 1996 was $18 billion, about $14 billion in 1997, and was--as of mid-October--just over $4 billion in 1998.)
Is it not credible that the stock price today should be much higher than the $40 to 50 range?
1. Micron is arguably the strongest memory chip manufacturer in the world. IBM is the only other memory manufacturer of consequence in the U.S. There is no one worth losing sleep over in Europe. Japanese and Korean manufacturers, while possessing strong market share positions, are bleeding red ink much faster than they can borrow new capital. As a result, they are _much_ less able to invest in new generation semiconductor production equipment than Micron is.
2. Factor #1 in with the fact that Micron is already the operational leader in DRAM manufacturing.
3. Factor both #1 and #2 in with the fact that Micron is already the leader (or close to it) in market share.
4. Add into the mix the fact that Micron has a strong and savvy management team, and I have difficulty seeing how Micron will not end up being the dominant memory chip manufacturer within the next 12 months or so.
Now, Micron had a share price in the $90's back near the end of 1995. Going into 1999 we have a much larger global DRAM market; Micron is poised to own a very large share of it; and they have the operational capacity to make money in this "commodity" market. Within the next 12 months, why should we not expect to see a share price very significantly over $100? It's probably not unreasonable to ask why the company's long-term profitability isn't looking at least twice as good as it was at the end of 1995. That being the case, a $25 billion market cap ($101 share price) versus today's $11.8 billion market cap ($48 share price) isn't outside the realm of possibility, given Micron's likely ability to generate profits these next few years.
Just my two cents worth.
Jeff |
