David:
Your last post is more conducive to a useful interchange of info. than the one I referenced. It's proximity to my post was no doubt a coincidence, and I'll take it as such. I'll note in passing that disparaging comments in response to a factual post do little to enhance the reputation of its author. Responding with fact-based counter-arguments is more valuable.
With respect to your post, a rejoinder.
- Micron "earned the dollars they reported". The company did not earn any dollars, it reported a loss.
- The fact that others are mis-reporting does not lessen the misbehaviour. Additionally, Micron "got caught". Even worse, the odours emanating from it almost beg SEC action in that;
It appears to be an intentional attempt to cover up serious internal problems.
The timing of the misrepresentation was dumb, almost a "thumbing-of-the-nose" at the SEC as it commences a high profile hunt for just such misbehaviour.
The timing was worse than dumb, given the immediate posting of a secondary offering that allows the insiders to exit their options on top of already heavily sold stock.
- "Better-than-expected numbers" has become a charade. Analysts rushing to "revise" their estimates (inevitably downward) a few weeks before earnings release is a sick joke, given their earlier optimistic expectations. Compare MU's recent results with earlier First Call estimates.
- Better yields in those TXN plants will cost a billion dollars. No matter the amortization schedule, it is a senseless act (except as viewed by insiders as a means to exit stock). Unfortunately, it is probable that the TXN-MU contract mandates this expenditure. Micron sells 72% of its memory products into the PC arena. Early data suggests that the PC sector just completed its first-ever negative revenue growth year (as I had forecast last year). 1999 will be worse. Micron's competitors are also improving yield at a frenetic pace. These facts suggest that supply will continue to outstrip a shrinking demand. The company may produce more memory chips, but it must also sell them at a profit. In the absence of "Devine Intervention", prices will remain at or near cost-of-production, which means no cash flow
- If the company spends its remaining cash on the TXN plants, interest costs will eat MU for lunch. Interest on $1.5 billion in debt (plus the 2 years of "deferred interest on $500.0 million) dwarfs any possible cash flow unless memory chip prices rise by an order of magnitude. Calculate MU's expected output, take an optimistic view that they can sell all of it, factor in an equally optimistic all-up cost-of-production. then throw in the interest. The required pricing to reach profitability appears "unrealistic".
- Commodity prices tend to move toward the cost of production. Excess supply exacerbates this tendency. Memory prices slipped below cost of production, so it is not unreasonable that they drift back towards that figure. "Firming prices" is relative.
- Contrary to your assertion, there is a large cost to improving yields. The benefits of same do not go "right to the bottom line". As noted above, the cost for the TXN upgrades will be $1.0 billion.
MU's competitors are also hard at work improving yields. Many will double mbit output this year. (Hyundai as an example) Many are sitting on un-used capacity. Who buys all these chips?
- Last year, I suggested that MU would suffer losses in excess of $100.0 million per quarter. I was right. Based on that, I expected a rational market to trade the stock down into single digits. I was wrong. MU's current stock price remains stratospheric based on analysts' expectations that are demonstrably founded on MU's mis-represented numbers, and that extrapolate an unrealistic (insane would be more accurate but also impolite) parabolic rise in prices, an unimpeded yield improvement curve, a boisterous PC market, and comatose competitors. These expectations will again require "downward revisions". While it is possible that analysts can rejuvenate the now two year old myth of "the commencement of a new semi cycle", at some point even the most optimistic bulls may become disenchanted and exit at its non-appearance.
- The pending sale of more than $2.0 billion of Micron stock may also begin to worry a few of the "fundamentals-oriented" types. If an SEC sniff becomes apparent, or is even perceived to be possible/probable, selling pressure will mount. It would take very little to trigger a serious "correction", as the stock price has no supporting fundamentals and is dependent on momentum activity and the "greater fool" theory. I'll leave it to the technical traders to figure an appropriate "bottom". The fundamentals still suggest "single digits".
_ It is interesting that this stock has climbed from $20. to $80. on analysts' hype and momentum. Gravity impedes the climb, but assists the fall.
On occasion, my posts are lengthy, particularly when several facts appear relevant. My hope is to see counter arguments appear that will force me to rethink my positions. I'm actually delighted when other participants kick my butt when dumb ideas are presented, as frequently occurs. I'm a fundamentalist, hence my comments may be of little interest to technically inclined traders.
Actually not a "forever bear" (although the entitlement is humorous), more a singed "too-early bear". (g)
Best, Earlie |
