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The people will remain uncertain whilst
'Twixt you there's difference; but the fall of either
Makes the survivor heir of all.
-- From Coriolanus, Act V, scene VI, by William Shakespeare
The plot thickens around the future of the computer memory market. The Taiwanese consortium with nearly a billion of government backing picked Japanese player Elpida as its knight in shining armor. Jilted at the castle gates, American chip wrangler Micron (NYSE: MU ) is now casting bedroom eyes at the Taiwanese peers who didn't join that official alliance.
There are lots of moving parts in this tricky situation -- bruised corporate egos, the interests of three separate nations, and the rapid consolidation of this deeply damaged industry. Even with lots of government money (pick your pois ... eh, nation), the new Taiwanese consortia may or may not survive the twin sledgehammers of huge overproduction in the name of manufacturing efficiencies, and waning worldwide demand for these memory chips and the gadgets they power.
Chances are that Micron will end up buying something or someone. The largest American memory expert is raising money by selling $450 million of stock and convertible senior debt papers next week. Goldman Sachs (NYSE: GS ) , Deutsche Bank AG (NYSE: DB ) , and Morgan Stanley (NYSE: MS ) are handling the logistics and taking their customary cut. Micron will collect about $434 million net proceeds after underwriting fees and the like, and that sum will be used for "general corporate purposes, including working capital, capital expenditures, and potential acquisitions and strategic transactions." (Italics mine.)
Every memory maker is hemorrhaging money and desperately seeking cost reduction measures through internal measures and partnerships. A loose "United We Stand" seems to be the battle cry, unless you're a diversified giant like Samsung or Toshiba (OTC BB: TOSBF.PK), both of which seem unwilling to launch a shopping spree amongst their smaller and more vulnerable rivals.
When the dust settles over this battlefield, I will start to consider investing in the survivors. Memory stocks like Micron, Spansion (Nasdaq: SPSN ) , and Qimonda all run substantial risks of going to zero before all is said and done.
But once the smoke clears, the stocks left standing could be poised for some of the greatest bouncebacks in living memory.
Stay tuned. This is gonna be fun.
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