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

To: Sun Tzu who wrote (38770)	9/22/1998 12:51:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 53903

sun tzu, don't short yet. the bearish case is ominous or kip wouldn't being creating what will be proved to be fables. the mu bulls make a rock look like an iq champ. they believe anything. the speculate based on possibility (anything is possible) and not probability (duh, what's that? ;-) you may miss mus collapse. if so, nothing lost. however, if dram starts tanking (it hasn't) and the pimp-o-rama escalates as it did last year to coincide with the collapse, you will make, easily, 10 times your money by purchasing puts. and you will know it in advance. i can see mu going above $40 inspite of potential bankruptcy. you see, the first law of holes is that you stop digging when you are in one. mu and mu bulls don't know this. they are like gamblers. they ARE gamblers. mu has been losing bad (wiped out 4-5 years of cash flow) and just doubled down. a desparate move, imho, by a company on the brink. but, the stock can go higher.

To: Sun Tzu who wrote (38770)	9/22/1998 12:54:00 AM
From: Carl R.	Read Replies (1) \| Respond to of 53903

Unlike much of the "noise" on this thread you ask very good questions, and show that you have put a great deal of thought into them. If you could correctly answer those questions, you could certainly make a knowledgeable investment decision. Unfortunately no one else has taken a crack at them, so I will. But that doesn't prove that my answers are correct. I will try to also point out where others on the thread might differ. 1) how are memory prices going up while disks still have problems - The two industries are interrelated, but they also have their own individual problems. For example SEG technically fell behind IBM in the disk drive war as IBM moved first to MR then to GMR while SEG was still in TFI. This allowed IBM to take profitable market share at the high end. SEG is still trying to catch up. These factors affect SEG without having any bearing on the memory market. They also made SEG, RDRT, and APM much better shorts than MU over the last two years, by the way. In the memory market we have seen some closures of low-end plants (that weren't really important factors anyway), but we are also seeing plant slowdowns of leading edge plants. Basically prices are so low that the Koreans apparently can't afford to sell at those prices, so they are restricting supply to increase prices. This situation is potentially unstable of course, and could break down at any time. But for it to break down, the Koreans will need to lower their production cost sufficiently that they can afford to sell at a lower cost, and reducing cost is difficult without running the plant at full bore. 2) What about AMAT's problems. Historically the equipment industry has trailed the semis themselves. The semis have run the cycle and are very depleted. Very few can afford new equipment. Thus they will have to make whatever improvements they can with their existing equipment, and the low cost producers will be profitable while others will fall by the wayside. As they return to profitability, the strong semis (whoever they may be) will begin ordering equipment again, and the equipment guys will see stronger sales. But the semis themselves will have to recover first. Note that in 1997 the equipment guys recovered without the semis. This was because the semis escalated the war, which caused the glut to worsen, and made this second dip even worse. But now the cycle will return to normal and the semis will recover first, followed by the equipment guys. Last to recover will be the companies whose sales depend on new fabs. 3) What about the problems in the mask makers? This is a good question. I agree that it does show that the semis are in really bad shape and that even R&D is being scaled back. But to me that is evidence that the semis themselves are scraping the bottom of the barrel. Make no mistake. The strong semis like INTC or TXN have the potential to expand market share by taking pieces from the weakened players. MU is certainly a weakened player, but there is no evidence that these strong players want any part of the memory market. 4) If memory prices go up, will the closed fabs re-open? No. The closed fabs will never re-open for making memory. They were out of date and cost inefficient, and not close to break even. Memory prices will not go up very far if at all. At best they will stay constant, but that is the same thing (see number 7). 5. Does it make sense that the financially strongest players will be the survivors? Yes. That is the primary premise of MB and skeeter. There are three factors which will determine the ultimate survivors. First of all deep pockets are important. Secondly low cost production is also critical - if your marginal cost is such that you lose money on each piece, even deep pockets are depleted eventually (note: see Korea). Thirdly, you can not forget that this is a game of chicken, and whoever blinks loses. As skeeter points out, MU has no where else to go, so they will play this game until they either win or lose. Other companies such as Hitachi, Matsushita, NEC, IBM, etc do many other things, and if they decide they really don't need the hassles of the memory market, they may go away. TI already did, incidentally, though they clearly had deep enough pockets to stay the course. This is a point where I differ with the bears. They place more emphasis on current financials and fixed costs, while I place more emphasis on marginal costs. Both are important factors and in making your investment decision you would be wise to consider both points of view. continued in next post.... Carl

To: Sun Tzu who wrote (38770)	9/22/1998 1:32:00 AM
From: Carl R.	Read Replies (1) \| Respond to of 53903

Answers to Sun Tzu's questions, continued: 6) Isn't it true that the improvements that make modern fabs more efficient also increases the production capacity exponentially? Yes. Output from leading producers may double by the end of the year: techweb.com This of course means that prices will not continue to be stable, and will begin falling again. But if costs fall by half, and prices fall by 20% the manufacturers will be ahead. This is the $24,000 question. With MU supposedly moving forwards to .21 and to .18u by the end of the year it seems likely that they will make dramatic price reductions of the scales discussed in the article. Of course when you switch to a new feature size your costs actually go up at first until you work the bugs out, but this is temporary. So let us say that their costs by year end are down 60% from here, and of course, their production capacity is double. Will memory prices be stable enough for them to be better off? Or will prices just plummet by half? How many other producers will double capacity by the end of the year? Will the Koreans be able to cut costs by as much, or will they be forced to fold? So many questions, so few answers... MB and skeeter would argue that PC makers won't take the extra memory at all unless the price falls by enough so that the dollars remains unchanged. This may be correct, but I think that not all memory makers will be able to reduce costs by that much, so I don't think total worldwide capacity will double by year end. Furthermore I believe that the reduced costs of leading producers will push more fabs deep into red ink, so that there will be an escalation of the rate of closing DRAM fabs by year end. But time will tell. The answers to this question are really the critical ones, in my opinion. (7) Where is Micron's break even point and how long at current DRAM prices can it survive? Who knows where the break even point is at any given point in time? Certainly not me, that is for sure. But I can tell you that it is not a fixed item. Each day they learn, find problems, improve yields, do shrinks, etc that lower costs. Some days a little, other days a lot. So the more appropriate question is, how long do memory prices have to stay at this level before they become profitable? I can't answer that question, either, but the stock price seems to be telling us that the prospects of MU reaching break even are better than they were. (8) Is Micron up to date on their technology or did the down turn prevent them from investing in leading edge technology? There was a link posted recently to an article claiming that they would be at .18u by year end. Thus I think it is safe to say that they have leading edge technology. They also have a reputation of being either the low cost producer, or at least a low cost producer. MB would point out that that only takes into account variable costs, and that their fixed costs are high after the TI acquisition. I would also point out that their costs will not be the same in all fabs. Yields are difficult to control, and each plant and each set of equipment must work hard to maximize yields and minimize costs. Thus I doubt their costs are as low now as they were before. I can't claim to have answered to have answered your questions, but I hope I have shed some light on them. In my scenario MU continues to slash costs and increase yields, the Koreans without money are unable to keep up, and they face an increasingly difficult time trying to stay in business. They continue to limit production, perhaps closing some of the less efficient fabs altogether in a futile attempt to hold up prices, which fall anyway. But prices stay high enough, long enough, that MU becomes profitable due to cost reductions, perhaps as soon as next quarter. This regenerates their coffers, affording them enough staying power that they can continue to lower costs. In MB's scenario the Koreans scrounge together enough money to get by and reduce costs at the same rate. Production quantity worldwide goes through the roof, and prices plummet as no one needs that much memory at any price. MU reduces costs, but they are in no better position than they were before, or maybe worse. The situation starts looking grim, and the price goes to single digits, forcing them into the hands of a white knight. Hope this discussion helps. I tried to be fair to both points of view, Carl