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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