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

To: John Graybill who wrote (26361)	1/9/1998 10:06:00 AM
From: DJBEINO	Read Replies (1) \| Respond to of 53903

Headline: Micron Technology: Java Jolt - 3rd Uptick in DRAM Pricing (from LEHMAN)GIVE ME AN UPTICK IN 64 MBITS AND WE'LL CALL IT A TREND ----------------------------------------------------------------------------- FACT: DRAM PRICE UPTICK CONTINUES, MARGINALLY BROADENS. Yesterday, 2 sources indicated 16 Mbit prices were up about 5% during the past day (some flavors much more, others unchanged). Overnight, that same trend was accentuated with 4M x 4 configurations moving up another 10% to $2.80-3.25, and that was joined by a 2% uptick in 1M x 16 Sync DRAM chips. The standard 1M x 16 was still flat at $2.00-2.30. Today 4M x 4s rose another 5-10%, 1M x 16s rose 15%; however, 2Mx8s were down 10% and 64Mbits were flat/down. EXPLANATIONS. One story circulating today is that Japanese vendors of plastic for packaging (Sumitomo is the largest) cannot get letters of credit for sales to Korean DRAM makers and so are holding up shipments. Despite all the trouble in Korea, it seems doubtful that a $2 finished chip would be held up for want of currency to pay for $0.10 of plastic. More logically, DRAM bit demand has been increasing at greater than an 80% annual pace, capacity commitment has been cut, and perhaps supply/demand is coming into balance. OUR VIEW. This is the biggest (only) price uptick we have seen in 6 months. It seems that 3-4 times every year DRAM prices zig, then zag, and we still are not fully persuaded that this uptick represents more than a temporary bounce from post XMAS distress prices. We remain quite concerned at the high level of consensus EPS projections. IF 64 MBITS JOIN IN THE BOUNCEBACK, WE WILL CALL THIS A TREND AND GET BACK ON MU. FOR THE MOMENT, WE ARE VIEWING THE UPTICK SKEPTICALLY. NOTWITHSTANDING OUR NEGATIVE OPINION, THE PRICING UPTICK CLEARLY SUPPORTS A RALLY SHORT TERM TO THE $30 LEVEL; WE NOTE THAT OF THE 16 ISSUES WE COVER, MU MAKES THE LIST OF TOP 5 VALUE CANDIDATES. Any sign this price uptick is sustainable would be followed by a much stronger rally. MU is among the world's low cost DRAM producers, and our long term opinion is unchanged: On a 2-3 year horizon, we continue to stick to the view that a price target for MU of $75 is reasonable. THEORY RECAP (GROUP): Here are the ups and downs we expect to deliver 30% chip stock appreciation in 1998: 1) In early January, tax selling/window dressing ends; group goes up 0-20% (now complete), 2) Mid-January 4Q97 EPS reports at low end of consensus; group drops back 10% (any concern on U.S. growth will exacerbate setback); 3) February seasonal rebound in orders (plus cyclical strength from US expansion) resumes; group rises 30-50%; 4) April-June seasonal strength peaks; group begins 25% selloff; 5) September-December strength of DVD drives, internet appliances, digital imaging emerges, pushes industry sales up 15% for the year (particularly strong 4Q comparisons) and stocks rebound 25%. THEORY RECAP (MU): The stock is up over 20% since reporting Nov. FY1Q98 EPS at $0.04, (towards the low end of consensus) despite the fact that DRAM prices have fallen at least 30% during the same period. Our models include year end 1998 16 Mbit DRAM price at $2.50, but they already are at or below that. Our projections are substantially below the street and still seem subject to further downside risk. DESPITE THE OUTSTANDING LONG TERM VALUE OF THIS LOW COST PRODUCER, BETTER VALUES SEEM LIKELY AS CONSENSUS PROJECTIONS FALL IN AN ONGOING DIFFICULT NEAR TERM DRAM PRICING ENVIRONMENT. WE BELIEVE AN UPSIDE SURPRISE ON PRICING IS LIKELY BETWEEN FEBRUARY AND OCTOBER AND WE WILL TURN MORE POSITIVE AT THAT TIME. -