MB and gang:
Noticed today that Mr. Daniel Niles projects Micron's stock at $200., based on his projections going out a fair bit into the hazy future. He speaks of Micron being well positioned to take advantage in an apparent upcoming new Dram cycle.
As Dan has been calling the "bottom of the memory market" for about two years now, I'm not quite sure of the basis on which he now sees a new cycle commencing (a slow starter?).
If a new cycle is beginning, it sure isn't going to be what Daniel has in mind.
- The Asian producers, having unsuccessfully endeavoured to (yet again) move pricing up by cutting back on production this past few months, are now cranking it up for an all-out price war. No question that their attitudes have hardened and that the swords have been strapped on. And of course there is that little matter of currency advantages that he so conveniently overlooks.
- Global memory chip capacity continues to escalate (through better yields and efficiencies), even as global demand continues to trend negatively.
- The PC industry, which soaks up the lion's share of memory, will exit 1998 with the largest PC inventory overhang that I have ever seen. Last winter's overhang gave the industry almost 2 quarter's worth of indigestion. This one is many times larger, and is going to wreak havoc. The industry has simply built far too many boxes this quarter (in a belief that each could take market share), and the market has not been able to soak up the products. If you think I'm wrong, go visit a store that is located in any middle class environment (carriage trade areas still doing ok), or talk to a VAR.
- This year (1998) will witness two new PC records,....the first year in which PC revenues decline (y-o-y) and the first year in which unit growth is essentially flat (85.0 million units plus or minus a bit,...same as 1997).
- Next year will be worse, particularly as additional jurisdictions feel the effects of deflation. With a huge inventory to be forced into an increasingly glutted market BEFORE any new production can be shipped, this Winter is shaping up as pure misery. I expect 1999 to end with PC UNIT sales well DOWN from those of 1998
- No new applications, and hence no new additional memory requirements for PCs, bodes ill for memory sales in 1999. With added capacity now coming back on stream, what does Mr. Niles project will be the new and novel uses for memory chips? There sure as heck will be a LOWER demand in 1999 than in 1998.
I have watched Niles get away with this drivel for some time now. Sooner or later somebody is going to ask the simple question,..."Dan, show us some numbers or some of the assumptions on which you (continue to) make these wacko projections".
Certainly the company's current situation does not provide any form of support or encouragement for his nonsensical touting. The company is losing many millions each quarter, they have big debts on which both continuing as well as two years worth of deferred interest must now be paid, the company has issued a ton of new stock this year (much of which will be sold as soon as legally permissible), memory prices have been depressed for many months and will continue to trend lower as the Asians crank up, and the main market for memory is glutted. Hardly the stuff of which wondrous new cycles are made.
Mr. Niles comments are as they have been for some time, simply a dream. Sooner or later the investing public will wake up and recognize this type of "research" for what it is.
Best, Earlie |
