SAN FRANCISCO -- In Boise, people don't worry much about earthquakes. But Boise-based memory chipmaker
is learning that far-away temblors can hurt its stocks, even when the company has nothing but good news to offer investors.
Micron stock is down 8% this week despite the piece of news it handed to fund managers at the
Banc of America Securities Investment Conference
: Contract pricing -- the price Micron gets from its largest contracts with prime customers like
-- is now more than $9 for a 64-megabit DRAM. That's double the price it went for in July.
Meanwhile, spot prices, those that mom-and-pop computer makers have to pay, hit $20 in this month. That's four times its price in June, when spot memory prices sank as low as $4.
Yet investors are too busy fretting about the Taiwan earthquakes to notice. They're concerned that damage in Taiwan from the Sept. 21 earthquake and its aftershocks will keep computers from being built in time for a booming Christmas season -- and that could hurt demand for the memory required for those computers.
The bad news from Taiwan isn't so bad, but the very uncertainty is draining Micron of its recent gains. "No one can tell what the extent of the damage is," Kipp Bedard, the corporate affairs director for Micron, told
Micron is less vulnerable to loss of business in Taiwan than some of its competitors. It has no manufacturing plants in Taiwan, unlike competitors
. As much as 15% of worldwide memory production comes out of Taiwan, and a subtraction of that from the world's supply could keep prices from sliding. "Micron,
are all clear winners in this," says Steve Cullen, a memory market analyst with
Cahner's In-Stat Group
, which has no consulting relationship with Micron.
Still, worried investors took the chance to pull some money out of Micron. As of Friday, the stock had gained 133% since May 25. Micron is taking an increasing share of an industry not only on the cusp of profitability after a three-year slump, but one expected to boom over the next three years.
Cullen expects 1999 worldwide sales will total $18 billion, but that will rise 50% to $27 billion next year and another 50% to $40 billion in 2001. If he's right, Micron's 12% share of the memory market will generate some $4.8 billion in chip revenue in 2001, compared to $1.7 billion in 1998.
Micron's share is increasing as a result of the industry's first consolidation since the '80s. In the third quarter of this year alone, says Jim Handy, a memory analyst with
, the paring back of some Japanese suppliers boosted Micron's share in the third quarter to 15%. (Dataquest does act as a consultant to companies on which it reports.)
Micron doesn't expect to see companies return to the market, even as it rebounds and booms. "Once you make the exit it is hard to get back in," Bedard says. "You need state-of-the-art facilities." Micron for example, must upgrade its manufacturing process every nine to 12 months, he says, and that could cost about $400 million for every plant.
Micron has the money to spend on these upgrades. It is sitting on $1.7 billion in cash; that's a sharp contrast to at least one major competitor, the merger of Hyundai and
, expected to close Oct. 13, which is sacked with a combined $57 billion in debt, he says.
For now, memory demand is rising faster than supply. In Micron's fourth quarter, which ended Sept. 2, demand rose 29% while production grew just 16%. That compares to a 13% growth in demand in the third quarter while supply rose 17%.
Financial analysts, meanwhile, remain bullish. A survey of 22 brokers by
First Call/Thomson Financial
produced a mean consensus loss for Micron of 38 cents for the year that just ended but a $1.33 profit next year. Rick Whittington, an analyst with Micron underwriter BofA Securities, is even more bullish. He had estimated that Micron will report a 39-cent loss for the fiscal year 1999, but now thinks the company will beat that. As for next year, he says Micron can earning a whopping $5 per share for fiscal 2000.
"Samsung is the only real competitor to Micron and Micron is running faster in production and lower its costs," Whittington says. The company has just produced a 128-megabit DRAM that sells for significantly more than a 64-megabit DRAM but costs less to produce per bit, and that adds up to greater margins, he says. "Micron's earnings will materially exceed all Wall Street's expectations over the next two to three quarters, if not the next two to three years," he says.