Turnarounds That Haven't Turned Around: Micron Technology (MU)
Micron Technology (NYSE:MU) is one of the poor and beleaguered tech stocks that has been in turnaround mode for as long as memory serves. The problem is that it is in a spot in technology that is a loser and it can't turnaround in its current state. At $7.53 on Friday's close after giving a poor earnings report, this is a two-year low for the stock. For all practical purposes it's at a 5-year low.
There is a major problem and it might not EVER be able to be fixed. DRAM is just a garbage business. Its like trading a commodity that grows out of the ground, except that DRAM prices aren't like other commodities. As corn rises, as oil rises, as gold rises, and even as inflation rises, it seems that the path of DRAM is to only see lower and lower prices through time. Not only that, but DRAM manufactured today is worth less than yesterday and that makes inventory a challenge. We don't see this changing for the better, or not much anyway.
Micron is also a U.S. producer, so it likely has higher operational costs than DRAM coming of Taiwan, China, and Korea; and we won't even discuss the higher environmental standards it has to maintain.
The Lexar acquisition in 2006 for Flash hasn't managed to help it either. Even having the Crucial.com as one of the oldest memory upgrade for retail sites hasn't mattered. We don't really blame management so much. It's just in a bad sector.
Revenues did grow sequentially but if you can find investors that enjoy buying a stock of an established and mature technology company that is losing money then you will also be able to find the gold at the end of the rainbow.
Its balance sheet is actually in pretty good shape for the time being, and there is actually an "asset play" argument that could be made. But if it keeps operating at losses that will change over the next 12 to 18 months.
With any real earnings not being expected until 2009, we don't see the company having a great prospect here. It might even be too late for Micron to cash in on the solar craze for making polysilicon. Our opinion is that Micron needs to bust itself up into a compilation of different memory markets and find overseas buyers, or it at least needs to deliver on rumors of selling its CMOS image sensor unit (or selling out to Samsung entirely).
The company looks like its parts will have more value today than in say 18 months after its liabilities may grow and its assets shrink.
Jon C. Ogg
December 22, 2007
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