Micron Overview

March 2, 2005 - Copyright by Morris Rosenthal - - contact info

Trading Notes

DELL
HPQ (Hewlett Packard)
INTC (Intel)
AMD (Advanced Micro Devices)
MU (Micron)
NVDA (Nvidia)
ATYT (ATI Technologies)
WDC (Western Digital)
IOM (Iomega)

Notes on trading MU stock for investing in my SEP

Micron is in one of the most competitive sectors of the semiconductor/computer business. Micron competes head-on with Hynix, Samsung, Infineon and others, with new players enter the field in the China and the Far East. About 75% of Micron's sales consist of memory (DRAM) for computers, but they are rapidly diversifying, and hope to have 15% of their business in image sensors and flash memory by year's end. Micron invested $754 million in R&D in FY 2004, more than double their marketing and administration budget at $332 million. The company is currently (and perhaps, perpetually) involved in lawsuits with Rambus (RMBS) and Motorola (MOT). There's also an ongoing antitrust investigation into the practices of the DRAM (Dynamic RAM) industry. MU stock hasn't paid a dividend since 1996 and they have no intention of starting anytime soon. Like Intel, Micron owns their own Fabs, and therefore, their gross margins are dependent on their sales volume, since the manufacturing costs are largely fixed. Gross margins in 2004 were 30%, compared to 2003 when they tried selling at a loss and making it up in volume:-)

Micron carries a lot less debt on the balance sheet compared to similarly sized AMD. In fact, MU and AMD have traded similarly over the years, except Micron's peak value during the bubble got to nearly 10 times its current price, where AMD peaked at around a third of their current price. I'm not a bean counter, but it seems to me that Micron has a much stronger balance sheet than AMD. The companies have similar assets, but MU has half of AMD's debts. Another way to look at it is if the perfect auctioneer liquidated AMD and MU tomorrow, I think they'd get over $5 billion for Micron, and only around $2.5 billion for AMD. The premium on AMD stock, which trades at a current multiple of nearly 70 times, compared to 25 times for Micron, is all based on the expectation that AMD is essentially a growth play while MU is a commodity business.

I've owned MU several times, it was the first stock I ever tried momentum trading with. I remember buying 100 shares of MU for $33 and selling them a couple weeks later for $43. Some time later I bought them back for $33, and this time got cold feet and sold at $38. A quick $100 and $500 respectively. Unfortunately, the next time I was tempted to buy MU it was down around $15, I bought 200 or 300 shares, and sold out at a loss. I'm currently holding 500 shares of MU and waiting for them to report their quarter, currently looks like March 24th.

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