Looking to enter on the long side of Micron Technology (NYSE:MU) again in the next few days. The stock has been getting hit on concerns about pricing and inventories across the product portfolio. However, the concerns seem to be exaggerated given the following:
1) Inventory concerns are not new as these were in part the reason why the stock got hit so much in October when the co last reported inventories of $799.7 mln, up $163.1 mln vs previous qtr. However, $75 mln of the increase was due to Lexar acquisition, making it one-time increase in NAND Flash inventories.
2) Talking about NAND Flash, while the pricing pressure is most likely to be a problem, remind that it still represents less than 10% of revs. As such, it should be fairly easy for the company to write down excess inventories (i.e legacy Lexar inventories) and come out leaner and cleaner.
3) CMOS, representing ~15% of revs is another cause for concern given the OmniVision (NASDAQ:OVTI) results & guidance. However, note that OVTI's weak margins were at least in part company-specific due to product mix and fabless operating model. Micron's CMOS operating margins have been ~5% better than OVTI's for this year, giving it more flexibility.
4) That brings us to DRAM - hey, Micron is still a DRAM company, remember? As usual, there is much talk about pricing pressure for DRAM, but that doesn't look anything out of ordinary for me. And we still have Vista upgrade cycle ahead of us. Vista, remember, is a masterpiece that would prefer to have Micron's one month's output of DRAM in the computer. Or at least 2 GB.
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