Micron Technology, Inc. (NYSE: MU) has entered into a joint venture today with Nanya Technology Corporation. This new JV will be called MeiYa Technology Corporation.
This is not an easy one to figure out for the end game because this is a DRAM venture, and that business has become a commodity business that is very difficult to keep making steady profits in. As part of the JV, a 200 millimeter Nanya facility will be upgraded to the 300 millimeter technology and production is expected to come online in 2009.
Here is why this is hard to get: each will commit $550 million in cash by the end of 2009. The problem is that Micron is now expected to lose money not just in 2008, but now in 2009 as well. Of course that doesn’t necessarily mean that the company won’t generate cash later on in that time. The issue is that Micron needs its cash to get through the next eighteen months to two years. Unless this is going to allow Micron to unload some of its plants to an OEM or to a foreign manufacturer, this just looks like another round of "more of the same" and that strategy has not been working for the company. How long is the pay off time for a new factory, and will that pay off time work the same in a J-V?
We noted Micron as one of the turnarounds that was just seeming to be unable to turn around. Wall Street has been under the impression that the company needs to liquidating certain parts of its operations. Staying negative on a business after it has already lost half of its value in a traditionally cyclical business that can ultimately get its act together is never an easy call.
Our first instinct here is to call this the wrong direction if it isn’t to close other capacity in the allotted time. We’ll find out in time if this works, but longer-term shareholders that have been in the company for a long time may feel like it is running out of time. The flip-side to the argument is that this shows Micron going on the offensive and not just trying to hit a single here. Our issue is that the company so far hasn’t been able to make that work out in its favor, and even the higher-end DRAM operations are considered a commodity business that is hard to make consistent profits in.
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Jon C. Ogg
April 21, 2008