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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: DJBEINO who wrote (49123)	10/8/1999 3:01:00 PM
From: yousef hashmi	Read Replies (2) \| Respond to of 53903

-- =SMARTMONEY.COM: DRAM Prices And Chicken Little -- By Monica Rivituso Smartmoney.com NEW YORK (Dow Jones)--DRAM prices are down. No, wait a minute, they're up. Take that back, they're down again. Welcome to the world of Micron Technology (MU). Fact is, all of those statements were true at one time or another within the past month. Thursday and Friday, word had it that prices for dynamic random access memory, or DRAM, chips in the spot market (we'll get to that in a minute) were down. That had the usual effect on Micron stock, which follows DRAM spot prices like a shadow. The shares fell 8% in heavy trading Thursday and took the rest of the chip sector down with them. Friday wasn't looking much better as the stock plunged in early trading. But is this really something to panic about? Or was this week's flurry of positive research about the "first year of a three-year cycle" the real dope on this company and the volatile chip sector in general? Don't forget that since June, Micron is up nearly 100%. And it has soared 287% since July 1996. There is little doubt this is a scary investment. But in our view there's a whole lot more noise out there than there should be. To understand our reasoning, however, you have to back up a minute. Let's take a quick look at DRAM pricing. The key thing to know about this commodity-like chip is that there are two distinct DRAM markets: a contract market, where chip consumers like the PC companies buy a specific number of chips at a specific price, and a spot market, where excess DRAM supply gets sold a la carte. The spot market allows chipmakers and their customers to dump their excess inventory of DRAMs when they need to. And at one time, companies like Micron sold the bulk of their production that way. These days, though, almost all of Micron's business is based on contract pricing, which is much more stable. Nevertheless, everyone - from analysts to investors to PC makers - remains obsessed with spot prices. "People fixating on the spot market is still an adage," notes Credit Suisse First Boston analyst Charlie Glavin. Seems old habits die hard. Making matters worse is that there's no single source of spot-market pricing data. Analysts and industry watchers have to work their own contacts to get the numbers, which flow into the markets erratically and are almost always subject to interpretation. There is a whole host of factors that weigh on the spot market, from PC demand to natural disasters. Figuring out what's going on is difficult, to say the least. Which brings us to this week's action. Spot-market DRAM prices are said to be softening. But is this such a big shock? Not really, according to Ken Pearlman, a Wall Street Journal All-Star analyst from CIBC World Markets, who doesn't cover Micron but watches DRAM prices very closely. Spot prices went from $4 per chip to $20 per chip over the course of several weeks, he explains, as buyers reacted knee-jerk style to Taiwan's earthquake on Sept. 20. (Taiwan's huge chip factories make much of the world's DRAM production.) "So, to see prices back off should not be much of a surprise," he says. Joseph Osha, an All-Star analyst from Merrill Lynch who does cover Micron, agrees. He said in a brief note Thursday that spot prices were too high and should come down to about $7 next year. Just because spot-market prices are falling, doesn't mean contract prices are going to crater, Pearlman says. "Contract prices are not very volatile." But it does mean that contract prices, as they're being renegotiated, might not be as high as suppliers like Micron would like, he says. What's more, DRAM prices are notoriously seasonal. PC makers need these little memory chips when they're ramping up for their big selling season - the holidays. As such, monthly billing for DRAM manufacturers spikes in November and then drops off until May or June, Pearlman explains. This is a now-familiar pattern for the DRAM industry. There's another big factor to the DRAM scene: whether a surplus that weighed on the industry for three years through 1998 has been fixed. Pearlman - a contrarian on this point - doesn't think the industry is quite out of the woods yet when it comes to oversupply. But most everyone else on the Street sees the surplus as having been absorbed, and analysts are forecasting DRAM shortages much sooner that Pearlman. Bottom line: Most see all this spot-market DRAM talk as a distraction to the big picture. "It's unnecessarily weighing on the sector," says SoundView Technology Group analyst Sudeep Balain. So while DRAM prices clearly add complexity and volatility to the market for chip stocks, it's worth keeping your eye on the long term. Few analysts disagree that the cyclical trend remains upward for these stocks, regardless of the bumps in the DRAM spot market. And the up-cycle in chips has been particularly rewarding for patient (and brave) investors in the past. Anything can happen in the volatile technology sector - but you already knew that. This week's chip weakness has a Chicken Little feel to us. For more information and analysis of companies and mutual funds, visit SmartMoney.com at smartmoney.com (END) DOW JONES NEWS 10-08-99 02:56 PM- - 02 56 PM EDT 10-08-99 Symbols: US;MU US;MUZ Source DJ - Dow Jones Categories: I/SEM SUB/DJN N/DJN SUB/DJWI N/DJWI SUB/DJS N/DJS SUB/POV N/POV SUB/SMT N/SMT SUB/HIY N/HIY SUB/WEI N/WEI M/NND M/TEC P/DCO P/DSE GEO/IDA R/IDA GEO/NME R/NME GEO/US R/US GEO/USW R/USW

To: DJBEINO who wrote (49123)	10/8/1999 8:09:00 PM
From: Glen2	Respond to of 53903

DRAM pricing will continue to be volatile. History shows that price increases often stretch too far upward, followed by price decreases that fall too far downward. Although they look like they're inorganic, semiconductors, particularly memories, are as perishable as tomatoes. Nobody ever wants to be caught holding inventory of a commodity whose price is falling. One of the only ways to avoid owning overpriced inventory is to be among the first to cut price. Folks that are first to cut price guarantee that they won't be left with too much inventory. Folks that are either slow to adjust prices downward, or that fear that they'll be forced report a loss at the end of the reporting period, usually are the ones who regret not being more aggressive earlier. The net result is that we and the MU stock price have benefitted from spot shortages. The earthquake inserted FUD into the DRAM channel. The current price decreases that have driven the MU stock price downward will soon end. This will again present us with another opportunity to to profit from increases in DRAM prices and more importantly, increases in the MU stock price. Good trading, Glen