Foolish Forecast: Micron's Minuscule Market Muscle
Memory chip maker Micron Technology (NYSE: MU) reports second-quarter earnings on Wednesday night. The last quarter was a sad story, and good news has been in microscopic supply for a long time. Is this the magic turnaround period? Read on.
What Fools say:
Here's how Micron's Motley Fool CAPS rating stacks up against some of its peers and competitors:
|
Market Cap (millions)
|
Trailing P/E Ratio
|
CAPS Rating
|
|
SanDisk (Nasdaq: SNDK)
|
$5,030
|
24.2
|
****
|
|
Micron Technology
|
$4,490
|
N/A
|
***
|
|
Rambus (Nasdaq: RMBS)
|
$2,450
|
N/A
|
**
|
|
Qimonda AG (NYSE: QI)
|
$1,320
|
N/A
|
**
|
|
STEC (Nasdaq: STEC)
|
$312
|
32.3
|
****
|
Data taken from Motley Fool CAPS on March 29.
The CAPS bulls like Micron as a turnaround play because the memory industry surely must be scraping the bottom of the sinkhole. The bears see just another former highflier being grounded by a weak economy and low consumer confidence.
What management does:
Oh dear. The gross margins tell the whole story here. Gross income was $5 million last quarter on $1.5 billion in sales, so pushing out more units isn't likely to help in this corrosive price environment.
|
Margins
|
8/06
|
11/06
|
3/07
|
5/07
|
8/07
|
11/07
|
|
Gross
|
22.8%
|
24.5%
|
25.7%
|
21.9%
|
19%
|
11.3%
|
|
Operating
|
2.3%
|
3.3%
|
3.1%
|
(1.4%)
|
(5.1%)
|
(11.1%)
|
|
Net
|
7.7%
|
8.5%
|
3.8%
|
(1.7%)
|
(5.6%)
|
(12.2%)
|
|
FCF/Revenue
|
12.4%
|
(3.2%)
|
(29.4%)
|
(40.9%)
|
(46.9%)
|
(43.7%)
|
|
Y-O-Y Growth
|
8/06
|
11/06
|
3/07
|
5/07
|
8/07
|
11/07
|
|
Revenue
|
8%
|
9.2%
|
15.2%
|
9.1%
|
7.9%
|
4.7%
|
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Micron is hardly alone in facing hard times in the computer memory industry -- profits are about as common as dodo birds, because of chronic global oversupply pushing down sale prices on every type of memory. The supply-and-demand imbalance will eventually correct itself, and probably overcorrect for good measure. Gadget makers like Apple (Nasdaq: AAPL) keep cramming more memory into their devices, and solid-state flash drives from SMART Modular Technologies (Nasdaq: SMOD), STEC, and others could soak up a good deal of the excess capacity over the next few years.
Those are positives for the mid-term to the far future. Right now, the memory market remains stuck in this miserable quagmire, and Micron will report another fat loss on flat sales. It's a well-managed company with many positives, but Micron can still sink a bit further before things turn around -- as they always do in this cyclical industry. This stock is watch list material today, but not portfolio fodder.
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