Does Micron Get the Big Picture?

Micron Technology (NYSE: MU  ) has snapped its last photograph. The imaging sensor unit is spinning out into the hands of private investors.

It's hardly a surprising move -- rumors of Micron's departure from the image sensor arena have been floating around ever since that division was renamed Aptina about a year ago. But the situation came to a head very quickly as the bottom fell out of the whole market for fancy camera chips.

When Micron reported earnings in early April, the imaging segment had a 39% year-over-year revenue drop to just $83 million. That puts it behind chief rival OmniVision Technologies' (Nasdaq: OVTI  ) $89 million for the quarter, which may have put shareholder pressure on Micron's management to do something about this flagging venture.

Equity firms TPG Capital and Riverwood Capital will take Aptina off Micron's hands. We don't have a buyout price, but Micron will take a $100 million loss in its fourth quarter to account for this deal. Yeah, "ouch," and all that -- but the imaging chips ran at a $102 million operating loss last quarter anyway. It hurts Micron less in the long run to just get rid of the thing. Well, most of the thing: It will still maintain a 35% stake in the new independent, privately held sensor spinoff.

Now, the biggest tech company in Idaho is free to focus all of its assets and efforts on the core operation, which is digital memory of various kinds. And that'll take some doing. The memory industry is falling to pieces around Micron, with some competitors filing for bankruptcy protection and others looking to merge just to increase their chances of survival. Giants like Intel (Nasdaq: INTC  ) and STMicroelectronics (NYSE: STM  ) bent over backward in the last couple of years to get out of that high-risk game, and Micron is bleeding cash at an alarming rate.

So thanks for the memories, Micron. But the main memory market hasn't hit rock bottom yet, and I'm not touching this toxic stock until Micron can sell products for more than they cost to make. Spin out and refocus all you want, but it's not good enough for me.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On June 02, 2009, at 4:14 PM, IdahoAve wrote:

    What about Micron using prexisting Fabs to move into LED light production? Only one competitor in South Carolina in this industry, and the energy efficient lights we are currently using can easily be critizised for the mercury content. I'd like to see a Fool expert provide me a little commentary on Micron as an LED light producer.

  • Report this Comment On June 02, 2009, at 8:55 PM, SPQRusa wrote:

    LED production would be a good fit for Micron. LED/OLED panels for displays would also be a good fit. Now that GM got a leg-up from the US government, maybe it is time for the government to preserve the last remaining domestic memory producer.

  • Report this Comment On June 02, 2009, at 11:58 PM, nostrildamus wrote:

    Bleeding cash?? You've got to be kidding...Micron has positive operating cash flow for the last several quarters of 200-400M/qtr! They had about 1B cash at the end of last quarter, and they got an additional ~450M from a well-subscribed debt and equity offering in April. They have challenges and problems, but cash is not one of them. Mr Bylund, I recommend you take a look at the financial statements before making such a generalized statement. Many companies in the tech are indeed bleeding cash. Micron is not one of them.

  • Report this Comment On June 03, 2009, at 9:32 AM, TMFZahrim wrote:

    Operating cash flow is nice, but not good enough when you spend it all on capital improvements. And that's what Micron is doing these days. Check again with Free cash flow in mind, nostrildamus (great name, BTW).

    Anders

  • Report this Comment On June 03, 2009, at 11:49 AM, nostrildamus wrote:

    Ok, now we are talking financial statements... excellent. That is my core criticism of the article, the "bleeding cash" without much underlying financial discussion. Let's look at where they are now on cash vs. historical. Q209 (latest quarterly) they were ~950M, down about 5% from the previous quarter. Hardly counts as "bleeding". They issued debt/equity and received ~450M since that last statement, plus they've spun out Aptina now, presumably for some cash from the private equity investors. So they should be up around 1.5B right now. Looking back over several years, their cash has varied between 1B and 2B. So they are right in the middle of the historical range. Very few companies are in that good of a position in the current economy.

    Capex discussion...

    Yes, they are losing money, lots of money, when the capital investments are considered. Depreciation on investments made 2-3 years ago is huge. These are not free cash flow items. So the question is how much do they need to keep investing to stay on the front edge of technology curve? Is the capex the ned to spend less than their cash flow from operations? Generally, yes...unless they are building a new fab. Helping that right now is the fact that they can get firesale prices on capital equipment. And for capacity adds? They effectively got a fully equipped 60k wspm Inotera fab for pennies on the dollar. The Qimonda fab in VA is being advertised for sale on the internet (seriously very odd). Spansion is actively seeking an investor. I'm sure Qimonda and Spansion creditors are not expecting full price. Not sure if Micron will invest in either of those, it appears not so far. The point is their capex requirements can be fulfilled at a lower cost than historical.

    It's not a slam-dunk case for Micron here. They are facing a lot of challenges in a memory market where the competitors have poorly addressed the classic prisoners dilemma over the last few years, and worldwide DRAM and NAND production has exceeded demand. The invisible hand has driven some of the less efficient producers out of business, and will drive out more. Ideally, this will create a crunch point on the upcycle where the survivors will reap great profits. Micron is likely to be a survivor.

    Thanks on the name. Allergies bad this time of year...

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