Micron ( MU) lost nearly a quarter of its value since it reported yet another round of
resoundingly crummy financial results Tuesday. But at this point, it's not enough for jaded analysts to engage in their now-ritual post-earnings estimate cuts -- they're also starting to buzz about when the company will have to hit up the markets for a cash infusion. In trading Wednesday, shares skidded $2.99, or 22.5%, to $10.29. Among the painful takeaways from the first fiscal quarter's results, analysts say, is that Micron is likely to hit up the debt or equity markets for more capital sometime in the current fiscal year. Right now, nobody sees how Micron can pare its losses enough to avoid it -- although management yesterday insisted to a skeptical audience that it will reduce cash burn going forward. "Looking ahead to the remainder of FY03, our model estimate is that cash flow from operations will be minimal," wrote Banc of America's Doug Lee. His firm has no banking relations with Micron. He expects cash burn to be about equal to quarterly spending on capital investments, which should range between $500 million and $900 million over the remaining three quarters. Deutsche Bank's Ben Lynch likewise expects Micron to seek more capital, whether it's to shore up a weakening balance sheet or raise money to spend on new manufacturing technology. "At the current rate, Micron has only two quarters before its cash runs dry," he said in a note. In the last quarter, the company drew down its cash balance by a whopping $328 million, following on several quarters' burn rates of up to $250 million. Deutsche Bank hasn't done recent banking for Micron. Micron management asserted Tuesday that cash burn will fall in the second and third fiscal quarter. But that assumes that DRAM selling prices stabilize or increase slightly, Lynch notes -- an outlook he considers unlikely.
After all, in the just-ended quarter (for which Micron had geared up for a mild holiday boost, which didn't happen), average selling prices ended up sliding 12%. In the quarter before that, which also should have run seasonally strong, prices dropped off 30%. In the meantime, while the company figures out its capital needs, expect continuing uncertainty on shares. "Until the market knows whether it will be debt (arguably, share price neutral) or equity (share price negative) financing, we expect it to represent an ongoing drag on the stock," wrote Lynch. One more gloomy takeaway from Micron's results, looking back on the November quarter, is that the company missed out on a big opportunity: the short-lived price spike in the price of DDR, a new type of memory. As Lynch noted (in a report titled "DDRat!"), Micron was at a disadvantage, because only about half of its production was devoted to DDR. Meanwhile, its rivals could claim 60% to 75% allocations to DDR. "Micron misjudged and/or had execution problems relative to its DDR DRAM transition and shipments, in our opinion," agreed Prudential's Hans Mosesmann. Prudential doesn't do banking. A slew of analysts cut earnings estimates after Micron's call last night. Banc of America's Lee, for example, dramatically widened his FY03 loss expectation to $1.73 from a prior outlook of a 27-cent loss (though he noted that about 75 cents of that relates to revised tax assumptions). Though most followers fully expected the stock to take a beating, even its cheap valuation couldn't generate enthusiasm. Even Lehman Brothers' Dan Niles -- one of the rare analysts with an "overweight" rating on the stock -- suggested holding off on purchases, though the stock is now trading just off its 10-year valuation low of 1.3 times book value (compared with a trough of 1.1 times book). "We would rather build positions in the seasonally weak Q2 for the rest of calendar year 2003," Niles explained. Lehman has done recent banking for Micron.