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

To: Skeeter Bug who wrote (40999)	11/21/1998 6:20:00 PM
From: Thomas M.	Read Replies (2) \| Respond to of 53903

pathfinder.com Even with Big Backers, Chip Maker Micron Is a Bad Bet by Erick Schonfeld Predicting where memory-chip maker Micron Technology's stock is going is as imponderable as a quantum physics equation. Nonetheless, Micron is a good lesson on why investing in tech companies is so hard, since it requires an understanding of the short life spans of products and the dynamics of business cycles. Right now Micron is reeling from a 95% collapse in the price of its mainstay commodity, DRAM memory chips, over the past three years, as well as weakness in its PC business. In its fiscal year ended last Sept. 3, Micron lost $234 million, on revenues of $3 billion. As a result its stock is trading around $38--tumbling 22% since its high last year. But in the past few months prices for DRAMs have stabilized, and two big investors have stepped up to put in some money. Intel just announced that it's paying $500 million for rights to 16 million shares of stock. And in September, Texas Instruments swapped its DRAM assets, including factories and equipment, for $880 million worth of Micron stock, or 29 million shares. Texas Instruments is also giving Micron $550 million in cash, and it is receiving two debt notes, one of which can be converted into another 12 million shares. Asked why his company wants Micron's stock, Texas Instruments CFO Bill Aylesworth says, "We think we can realize two to three times its current value by selling it over the course of another up cycle." If Micron's stock is good enough for these behemoths, shouldn't it be good enough for the average investor, who need sell only when Texas Instruments does, presumably at the next top? Maybe. But before you risk your savings on this stock, consider the uncertainty you'd be buying into. Don't look to Wall Street for clarification. Even BancBoston Robertson Stephens analyst Dan Niles, one of the most ardent bulls on Micron, warns, "This company will either make more money or lose more money than you ever thought imaginable." For fiscal 1998, Micron lost $1.10 a share. But Niles is so bullish that he thinks Micron can recover to earn a full 80 cents a share in fiscal 1999. Merrill Lynch's Tom Kurlak, who is neutral on the stock, thinks the opposite: that the company will lose 80 cents, maybe more. Other analysts are also all over the map. Even Intel's and Texas Instruments' motives for investing in Micron are different from the average investor's and from each other's. In return for its money, Intel is requiring that Micron build a certain type of DRAM memory chip that works faster with its microprocessors. Says Kurlak, "Intel is not looking for a return on its investment. The money is more of an insurance policy to get Micron's cooperation."As for Texas Instruments, it was getting killed in the DRAM business, so it desperately wanted to get out. Needham & Co. analyst A.A. "Tad" LaFountain III, who rates Micron a sell, says, "For all intents and purposes, they paid Micron to take the stuff away." In fact, an investment in Micron boils down to a bet on where you think DRAM prices are headed. A 64-megabit DRAM chip now fetches about $9, compared with $43 a year and a half ago. Prices are stabilizing because Asian manufacturers are shutting down some production lines to stanch their losses. Micron, however, is purchasing about $900 million worth of new equipment this fiscal year, which will reduce its costs per chip from an estimated $8.50 a chip to $5 in a year. If chip prices stay steady, as the bulls think, Micron will make out like a bandit, capturing market share and improving profit margins. If prices drop to about $6, as the bears think, there won't be much profit left. "The notion that everyone will stand back and watch as Micron lowers its costs is just wrong," says LaFountain. So unless you have strong convictions about DRAM dynamics and some mad money lying around, it's probably best to watch this one from the sidelines.