Analysts bearish on Micron, Qimonda, citing DRAM concerns

December 17, 2007 – A pair of financial analysts are taking the low road on a pair of big memory firms, citing continued concerns about inventory and soft pricing, though one of them sees light at the end of the tunnel for investors.

Ahead of Micron’s fiscal 1Q08 results on 12/20, American Technology Research’s Doug Freedman thinks the company’s results will reflect ASP and margin erosion in both DRAM and NAND, citing broader industry problems of oversupply and seasonality, though exposure to the NAND segment and increasing image sensor output/sales help mitigate the blow from the DRAM side. “We are concerned our forecast of profitability in the May ’08 quarter will once again prove too soon,” he writes in a research note, pointing out that any profit turnaround depends on “industrywide aggressive capital equipment reductions.”

Still, he says that he’s seeing encouraging early signs that DRAM spending will be more rational in 2008. “The timing of calling valuation bottoms in memory is more art than science, we believe we are closer to a bottom than a top.”

Elsewhere, Daniel Berenbaum with Caris & Co. is not as optimistic about the “bottom” for Micron or Qimonda, initiating coverage on both firms with “Below Average” ratings on concerns that DRAM oversupply is likely to continue through calendar 3Q08, along with continued softness in pricing and limited profitability for suppliers, notes Barrons blogger Eric Savitz.

Micron, he writes in a research note, faces “significant near-term profitability hurdles” as it weathers “destructive market share battles” in both DRAM and NAND — despite cost reductions and premium pricing, “being the best in a bad industry may not be enough,” he quips.

Berenbaum also writes that Qimonda, too, faces serious issues both financial and technical. Even with as much as $500M from sale/leaseback of fab equipment, the firm will likely need to add some kind of financing soon to keep its cash from dipping below working capital requirements by the end of 2008, he notes.


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