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

To: Thomas G. Busillo who wrote (44008)	3/19/1999 10:12:00 AM
From: A. A. LaFountain III	Read Replies (2) \| Respond to of 53903

Re: We are further encouraged given that Micron is about 25% of the DRAM market Here's some help with the SIA DRAM data: ($ in millions) MU 1Q MU 2Q Q/Q Sept/Dec $1,245 $1,466 Oct/Jan 1,345 1,526 Nov/Feb 1,517 1,711E* Total Market $4,107 $4,703E* +15% - MU 393E 1,176E* +199% = Rest of Market 3,714E 3,537E -5% * My estimate My estimate after subtracting marginal amounts of SRAM and flash * 25% of market (per other firm's research report) Now, it's certainly possible that my February DRAM mkt estimate is too high, but it's not going to be off enough to dramatically change the nature of the market during MU's 2Q. The point is that for MU to have reached 25% of the market, the total of all the other producers would have had to drop during a period of significant pricing strength and reasonable bit growth. I find that possibility fairly remote. In any event, for MU to get to 25% share, revenues would have to increase on the order of 200% during a period when ASPs were up low double-digits, implying bit growth around 150% (if 1Q bits are 1B and 1Q ASP was 1D so that 1Q revs were 1B * 1Q = $1, then with a 20% ASP hike to 1.2D, 2Q bits would have to be 2.5B for 2.5B * 1.2D = $3.0). And pigs will fab wafers. Here's what I don't get: 1) In terms of supply, we know that DRAM industry CapEx has been cut back, both in terms of growth rate (it's negative) and absolute dollars. We know that the Japanese are in a period of extensive retrenchment. It appears that the DRAM suppliers are likely to divide into 3 tiers, with the Japanese and Siemens in the second tier, the Taiwanese and everybody else in the third tier and MU with a good chance to join Samsung and H/LG in the first tier (and this is in keeping with the DRAM market's history, wherein the largest investors become the most significant players). We know that MU has made tremendous strides in terms of its technology. We know that MU's management has been incredibly creative/astute in terms of financing its own expansion. 2) In terms of demand, we know that PC units are growing, albeit at gradually lower rates (use + or - 15% and one is unlikely to be too far off). We know that the server market is growing in units faster than the rest of the PC market and that the memory demand per server is virtually insatiable. We know that additional usage of DRAM is likely to crop up from areas such as consumer electronics (digital TV, PlayStation2, etc.). 3) Put these trends together and it makes a very interesting story for MU bordering on compelling. So why do those who favor the story find it so necessary to either ignore current reality or distort it. IMO, such behavior introduces a creditability issue into a story that would be better off without it. Wouldn't it just be simpler if the stock were allowed to trade at a level that properly anticipated this improving future without the questions created by inaccurate claims about the present? ----- In the ongoing struggle in the stock market between perception and reality, reality always wins eventually (e.g., Sunbeam). If MU does improve its market position within the context of a strong DRAM environment over the next two years, some of its achievement could be diluted in investors' minds because it will be placed against improper characterizations of 1998-99. That would unfortunate, for everyone involved. My (maybe not only, but certainly biggest) complaint about management is that it has not only failed to correct some of these misperceptions, it appears to have played along with them. If that's the case, it may be due to the company growing in investor importance faster than management has grown in investor relations. In other words, the natural volatility of the DRAM market has drawn investors to MU that fall into the "rent, not own" category and, unable to give such investors suitable amounts of Ritalin, management has often offered what appears to be sugar-coated depictions of the business. But the increased strategic importance of MU (to the DRAM market in general and American semiconductor supply specifically) would suggest that the stock needs to evolve to a more strategic level. Part of that evolution should be a shift in management's approach to the investment community that emphasizes detached market analysis and takes on the stature of a true market leader. Done correctly, this process could help MU attain a position that would benefit shareholders, employees and customers alike. Personally, I wish them the best of luck in the effort. After all, superlative results speak for themselves, require no amplification and tend to get fully rewarded. - Tad LaFountain