Why do I think prices will stop falling at the $5-$6 range? I'll give you a fairly simple answer: For the same reason they stopped falling at $8 last year. Once prices fall to a certain level the players lose less money by reducing production than running full bore. At that point, they tend to slow down production in an attempt to stabilize prices. I don't expect MU to slow production, but rather to go full bore. I do expect some other players to slow production, however, when prices hit the low $6 range, and based on unit prices, we are getting close. Thus if prices continue to fall, which I expect, we should see some production cutbacks pretty soon.
Will MU lose money on 64mb production this quarter? Sure. No doubt in my mind about that. They will make a few pennies on older products, and they will probably make a few pennies from MUEI, but end up with a loss anyway, though not too big.
As I said, based on my forecasts, the marginal news is bad for MU, so I expect the short term trend to be down. At this point I think we'll certainly see prices in the 30s again. But I also think that the point will come when the marginal news will be good for MU, and then the stock will trend back up. Falling prices will drive the stock price down. Competitors throwing in the towel by converting to other products, or production slowdowns that stabilize memory prices will halt the decline, signaling the time to close your puts. But of course, you will hold out for MU to go to the sub 10 level, but they won't. This company is a winner, and will ultimately be one of the last DRAM makers standing.
Bears and bulls both make money sometimes, but hogs never do. <G>
Carl |
