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Technology Stocks : Texas Instruments - Good buy now or should we wait? -- Ignore unavailable to you. Want to Upgrade?

To: robert w fain who wrote (3716)	6/8/1998 10:39:00 PM
From: charles black	Read Replies (1) \| Respond to of 6180

Here is another article on MU buyout. FOOL ON THE HILL An Investment Opinion by Alex Schay Memory Loss Citing anonymous people "close" to the situation, The New York Times reported on Saturday that Texas Instruments (NYSE:TXN - news) is in talks to sell its dynamic random access memory (DRAM) chip business to Micron Technology (NYSE:MU - news) . The article put some wind in TI's sails today as it moved $2 11/16 to $53 1/2, and lent some popular legitimacy to rumors that have been swirling around the company for the last month that it has indeed decided to completely exit the DRAM business. With spot prices for 16 megabit DRAM on the Japanese market falling below 200 yen, or $1.42, on Friday, it's easy to see why Texas Instruments would want to limit its exposure to what has become an obscenely volatile commodity business --exacerbated currently by overcapacity and the short-run currency needs of Asian manufacturers. However, in 1996 even when daily press reports intimated that widespread production cutbacks were occurring as a result of plummeting DRAM prices, the overall "bit" growth in 1997 ended up being 95%. Bit production remained high due to the shift from 4 Meg production to 16 Meg, and as that production trend solidified, 4 Meg prices declined. As well, today's price declines in 16 Meg DRAM have been occurring against the backdrop of an industrywide production switch to 64 Meg DRAM. Worldwide bit production in 1998 is expected to increase by roughly 75%. Even so, Texas Instruments has probably decided that it no longer wants to ante up (make the necessary capital expenditures to stay in the game) for this particular type of no-limit poker. In the last couple of months, Texas Instruments has put some distance between it and the DRAM battlefield, walking away from its 33% stake in a memory chip joint venture with Taiwanese computer maker Acer and working its way into a brisk jog today. TI's key message over the last couple of months has been the "differentiated" nature of its products, with 85% of the firm's revenues coming from semiconductors. Roughly 12% of that total comes from memory (10% overall), 45% comes from digital signal processors (DSP), and the remaining 43% is a combination of application specific integrated circuits (ASIC), SPARC processors, microcontrollers, LAN Chips, and standard logic chips. The company's desire to stick with markets that are driven by applications, such as wireless communications and networking, has been roundly lauded as a good growth strategy. With DSP's set to grow at a compound rate of 30% or more over the next three years and the mixed signal market growing at 20%, Texas Instruments would rather focus its capital expenditures and R&D efforts in these high growth areas. This is not to say that the DRAM market is a low growth business -- if PCs grow at around 15% per year, some estimates forecast DRAM content per system to grow by as much as 40%. This "expanding memory requirements" thesis is the central element of the investment case for Micron Technology, which is looking to be the last of the American DRAM manufacturers (aside from IBM and if a deal is done). However, "low cost producer" status is the key to profitability here, with most players falling by the wayside -- Texas Instruments lost $0.06 a share in the fourth quarter of 1997 and in its latest quarter memory losses doubled in comparison to the prior year. Top Ten DRAM Manufacturers (Rev.) 1. Samsung 6. Texas Instruments 2. NEC 7. Mitsubishi 3. Hyundai 8. Toshiba 4. Hitachi 9. LG Semicon 5. Micron 10. Fujitsu Some observers feel that Micron can grab some quick market share with a Texas Instruments memory acquisition and launch itself into the second spot in the industry. (Although Micron may have trouble financing any deal, raising questions about debt or a possible sale of some of its stake in Micron Electronics). In fact, with the staggering cuts in capital expenditures at the Korean memory companies -- on the order of 50% in 1998 -- Micron might just surpass Samsung as the largest company in the business in 1999, with BankAmerica Robertson Stephens forecasting a supply-demand imbalance in DRAM by year-end 1998. In addition, the Korean capital expenditure cuts might allow Micron to be fully converted over to Synchronous DRAM and 64 Meg by year-end, and enable Micron to maintain a good cost advantage on the 64 Meg chips. So does all this mean Micron is a buy for 1999, especially because it is in a valuation trough? Although the company will probably see some wild price gyrations to the upside when the memory market improves, Micron remains in a business that is more conducive to profit-taking by savvy traders than by long-term investors. As well, if the memory market turns around, there will undoubtedly be a turnaround in other device manufacturing segments, which hold out more lucrative prospects for equity investors.