Micron: Pricey Chips, Pricey Stock

Last night, computer memory expert Micron (NYSE:MU) reported results for fiscal year 2006, and things didn't exactly come up roses. The Lexar acquisition added $20 million to operational costs in the fourth quarter, although purchase accounting rules didn't allow the company to count any sales of Lexar products that had already shipped into distribution channels by the time the acquisition closed. The net effect of Lexar on the quarter and year, then, was a -$0.03 on the bottom line.

The current star performer in Micron's product portfolio is its line of camera sensor chips. This segment doubled sales from the previous year, which works out to about $800 million in revenues out of the $5.27 billion in total sales for the year. Not too shabby, and Micron looks well positioned against competitors like Pixelplus (NASDAQ:PXPL), STMicro (NYSE:STM), and OmniVision Technologies (NASDAQ:OVTI).

But fancy flash memory and camera chips aside, Micron's bread and butter is still boring old computer memory. Despite management's "diversification strategy," DDR memory still makes up about half of the company's sales. Even with the Lexar consumer brand on hand, Micron is still a far cry from the SanDisk (NASDAQ:SNDK) 2.0 it so desperately wants to become. On the plus side, prices on computer memory are inching upwards, since most manufacturers have shifted production capacity into the trendy flash memory space. The laws of supply and demand work in Micron's favor here.

Finally, if it looks like Wall Street took a wild swing at the annual target and missed by about $0.30, do what they did and back out the gains from Micron's $230 million sale of its NAND flash patent portfolio to Intel (NASDAQ:INTC) in the second quarter. You'll end up with $0.24 of EPS for the full year, which fell short of expectations by the same $0.06 the quarterly result did.

So would I buy Micron today? I don't think so. The 13% haircut it took today makes the value proposition slightly less ridiculous, but back out that one-time flash technology sale and you get a stock trading at about 63 times trailing earnings. That's hardly what I call a bargain, right up there in Google (NASDAQ:GOOG) territory. And if I had to choose one overpriced stock to invest in today, I'd take Google over Micron any day.

Further Foolishness:

• If SanDisk is dropping because of the MRAM news, the market is crazier than we think.
• Check out the Foolish Forecast for these results.
• Let's find the next 60-bagger.

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Fool contributor Anders Bylund doesn't hold any position in the companies discussed here. You can check out Anders' holdings , if you like. Foolish disclosure is our own star performer.