SlowThinker, You have made some valid, thoughtful points, and you are correct that MU will continue to drop their costs. What you have failed to address is the "Achilles heel" of that cost reduction strategy, namely the impact of all that cost reduction (increased bit production)on the market price of DRAM. When MU had 4% of the DRAM market, they could rapidly ramp production without a big impact on the market, but as they have grown their increased output has played a larger role in driving prices down. I think most objective observers, and certainly the Asian producers, will testify that MU's strategy has been instrumental in the collapse of pricing.
It was interesting that with the inclusion of the TXN fabs (partial quarter) MU's cost per megabit was flat and bit production was only up 10%. Part of the reason was the total shutdown of Milano as they upgrade to 8 inch lines. Even with this temporary, and involuntary, production restraint during the strongest demand period of the year, pricing did little more than stabilize. As MU doubles bit production over the next couple quarters, and the Koreans also ramp output, it seems very unlikely that this price stability will continue. In the long term MU may win this war of attrition, but in the short run I don't think the stock will react favorably to another plunge in DRAM prices.
Regards, Dave |
