Q and A session with Mona Eraiba of Gruntal and co found at multexinvestor.com
12 month price target of $100. My question would have been, does that depend on a 1 to 5 or a 1 to 10 reverse split?
tom
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What exactly is the DRAM market, and why should I get excited about it?
Mona Eraiba: DRAM stands for dynamic random access memory. The DRAM market is the major segment of the memory market. DRAM memory is used in every computer to store information. DRAMs are semiconductor chips.
You're bullish on Micron after a long down period in the DRAM market. What are the market fundamentals that support your position (in addition to the specific Micron news)?
Mona Eraiba: The DRAM market peaked in 1995 and has since experienced more than three years of a downturn, the longest downturn in the history of the industry. Although demand remained exceptionally strong, the market suffered from significant excess supply, which caused prices to plummet. Recently, the industry has witnessed both major cutbacks in capital spending and the exit of marginal suppliers. At the same time, demand momentum has picked up. We believe that these factors will lead to a reduction of excess supply in the DRAM market, a stabilization of pricing, and a strengthening of the larger suppliers. Micron has emerged as not only the top supplier in the DRAM market but also the lowest-cost producer. We believe that, as prices stabilize, Micron will be able to translate its market share into strong earnings.
Do you have a 12-month price objective on Micron Technology?
Mona Eraiba: I have a price target of $100.
I'm a long time follower of Micron, and I was wondering if now would be a good time for a small investor like myself to take a position in Micron--say 100 shares--and hold on for the fall rally that seems to always take place?
Mona Eraiba: Yes, we believe that now is a good time to take a position in Micron stock. Almost all of the bad news is already discounted in the stock price. Of course, as you well know, Micron is a highly volatile stock, but considering the company's leading position, we believe that the stock is overdue for a rally.
Micron has been very successful with its die shrinks and the integration of Texas Instruments' fabs, but how much do you think its earnings will be impacted by NEC's recent announcement to increase 64Mb production by 150% over the next year? I've read many analysts' reports from Korea and Japan which maintain that NEC's manufacturing costs are lower than Micron's. Do you agree with that, and what are your cost estimates for NEC? Also, do you think NEC will start a price war in order to maintain its market leadership position? In your opinion, does NEC's capital expenditure spending for its Austin and Fab 9 plants represent a significant addition to hard capacity? Finally, do you think the new Hyundai/LG represents a significant threat to Micron?
Mona Eraiba: May I answer your questions in order? First, NEC is one of the major suppliers of DRAM, and we expect continued commitment to the market by NEC. Since overall market megabits grew over 80% in 1998 and are expected to grow the same amount or even more in 1999, it is no surprise that NEC is planning to boost its production 150% to capture share from the weaker players. Second, I do not believe that NEC's manufacturing costs are lower than Micron's. Micron is estimated by myself and many other analysts to be the lowest-cost producer in the world. I believe that NEC cost is currently running well above $6 per 64-Mb chip. Third, I do not believe that it is in NEC's best interests to start a price war. The company is selling its current output and should have no problem selling the increased production. Fourth, I believe that NEC's capital spending plan is around $399 million. In the DRAM world, that amount is fairly modest by historical standards. Remember, one leading-edge megafab can represent an investment of close to $1 billion. Finally, LG/Hyundai are major suppliers that cannot be ignored, but they are not new suppliers coming with additional capacity.
Why do you feel that this time it's different, while most other analysts are taking a much more cautious approach towards Micron? Can Micron meet EPS expectations with DRAM prices so low, and have DRAM prices started to stabilize?
Mona Eraiba: We do not believe that this time is different for the DRAM market. It is still a cyclical market, but Micron has moved into the position of top supplier; in previous cycles, it was an also-ran. Expectations are very depressed as a result of the weak prices. We also believe that all the bad new is already reflected in Micron stock. Prices have stabilized over the last few days, but we don't know yet whether or not this stability will be maintained.
I'm curious as to your thoughts on when the market will resume the construction of new fabs and the refurbishing of old fabs? I know that many plans for new fabs were put on hold throughout the world, but with the uptick in business, do you feel that the companies will let loose soon?
Mona Eraiba: I doubt that serious capital spending construction will start before the end of 2000. All of the suppliers are bloodied, and they have restricted their spending to technology investments needed to stay on the cutting edge. Many are refurbishing fabs rather than adding new large ones. This state of the industry will probably result in a massive shortage by the end of 2000, leading in turn to stepped-up spending in 2001 and beyond.
I purchased Micron at $72 based on information of a split. The price is now at $36. Do you feel that MU is a buy right now?
Mona Eraiba: I do believe that Micron shares are attractive at current levels, but as I said before, the stock is highly volatile.
I plan to hold my Micron shares. Any idea when the new cycle will begin?
Mona Eraiba: The new cycle is overdue, and we already have seen a new cycle starting for every segment of the semiconductor industry except DRAMs. This never happened before. DRAMs always joined the upturn.
How far along is MU with ramping up for the production of the new RDRAM of Rambus. Do you think Rambus will take a big stake in MU's revenues?
Mona Eraiba: Micron is ready for RAMBUS, but the market is not there yet because Intel delayed a critical chipset for that market for six months. We expect the market for RAMBUS to start by the end of 1999. It will probably represent less than 20% of the DRAM market in 2000. We expect Micron to have a share in RAMBUS similar to its current share of DRAMs, which is around 23%. In other words, the RAMBUS share of Micron's revenues should mirror the RAMBUS share of the overall DRAM market.
Recent articles in Scientific American and EE Times pointed to magnetic RAM as the next-generation digital memory. A new company, Micromem Technologies (MMTI), has worked with the University of Utah to develop an 8-bit prototype MRAM which has access speeds of five nanoseconds and is nonvolatile. The company has applied to NASDAQ and is in contract negotiations with Allied Signal and Siemens. Micron and Intel have also expressed interest in MMTI's MRAM technology. Have you any knowledge of this company and can you put its potential into some kind of industry perspective?
Mona Eraiba: I have no knowledge of this company, but new technology comes along almost every day. The key things are commercialization and the cost of the memory. We believe that DRAMs will remain king for a long time to come. No new technology can match the current low cost of DRAMs.
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