Mike
Earlie is too modest a fellow to blow his own horn so I'll paste in Dorfman's column (yes, he's baaaack !)
NEW YORK, June 2, 1999 (JagNotes.com) – Sketch of Micron: A
House of Horrors
Shares of chip maker Micron Technology (MU), 37 3/8, have fallen a
long way—more than 50%—from their 52-week high of 80 5/8. So if
you own the stock, you may well feel it's too late to sell; that the
decline already reflects all the bad news. Some bargain hunters
may even be tempted to buy.
Not so Larry Woods, editor of The Tech Review, a well-regarded newsletter out
of Stoney Creek, Ontario.
"In the 16 years I've been doing tech research, I've never seen such a mess in
the chip sector," he says. It's this mess, he figures, that will cause Micron to
report two devastating back-to-back quarters that should spark another major
plunge in its stock price.
Specifically, he expects Micron to post a loss of more than $100 million for its
third fiscal quarter, ended May 31. And he projects another loss of between
$100 million and $200 million in the fourth fiscal quarter ending Aug. 31.
For its current August fiscal year, Woods looks for Micron to lose about $500
million. This is a company losing serious money, he says.
Further, he sees Micron—which has $500 million of debt— producing more red
ink in 2000, unless, he quips, "it goes broke."
As our Micron bear puts it, "you just can't keep churning out product and
selling it below cost, which is what Micron has done in four of its past five
quarters."
In its second fiscal quarter, Micron was getting $9.50 to $10 per chip, Woods
says. Now, he adds, it's getting $5.25 a chip, roughly a 50% decline in just a
matter of months.
What's more, Woods sees chip prices remaining at or below cost of production
for at least two years. It's this financially bloody scenario that leads Woods to
predict that Micron shares will plummet into single digits in about six months.
"It's a great short sale" (a bet the stock price will fall), he argues.
From the standpoint of its ongoing business and stock prospects, Woods
paints a picture of Micron as a veritable house of horrors.
What's Micron's reaction to this bleak prognosis? It says it has made no
announcements yet concerning earnings because "we are not positive of the
numbers." It also says it is company policy "not to comment on Wall Street
stories."
In its most recently reported quarter ended last Friday, Micron earned a
better-than-expected 11 cents a share—its first profit in a year.
Out of the Chips
Micron's problems are, in large measure, a reflection of the semiconductor
industry's woes. Spelled out by Woods, they include:
—The world is awash in excess memory chip manufacturing capacity.
—The memory glut, already of stunning proportions, continues to grow.
—Yield improvements (the number of chips a company produces each year)
have effectively doubled global production in less than a year without a single
square foot of production plant having been erected.
—PCs soak up most memory chips and PC demand is soggy.
—The Koreans have emerged as powerhouse memory chip producers, and
there's no question that the major capital expenditures they made a few years
ago now provide them with significant cost-of-production advantages.
These woes aside, Micron also faces some headaches from a deal the company
struck about a year ago with Texas Instruments in which it bought the assets of
TI's semiconductor memory business. In turn, TI wound up with 28.9 million
shares of Micron, as well as Micron notes convertible into an additional 12
million Micron shares.
"It's our view that TI is a very, very enthusiastic seller of Micron shares," says
Woods.
If he's right, of course, TI's holdings represent a source of continued selling
pressure on Micron's shares.
TI, though, tells my colleague Judy Chung it hasn't sold any Micron Shares
and it has no plans to do so. However, it did say it's keeping a close eye on the
market because "we're not long-term shareholders."
To Woods, the handwriting is on the wall. "It's only a matter of time before
Micron's stock gets the dickens kicked out of it."
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