As if surviving the slowdown in demand for PCs and laptops isn’t pressure enough Micron Technology (NASDAQ: MU) is also facing the prospect of losing an antitrust trial in state court in San Francisco that could deliver a damning blow to the company’s future prospects. The mountain of uncertainty that MU has to climb hasn’t been lost on investors as shares have fallen from a high of 10.23 as late as May 31, 2011 down to 5.85 – 6.00 range on Tuesday and while the computer memory chip company appears confident that they can maneuver their way into new markets there is little they can do about the $3.95 billion suit filed against them and Hynix Semiconductor by Rambus Inc.
Shares of MU continue to trail their 50-day moving average of 6.94 as well as their 200-day moving average of 9.07 while trading volume has remained strong, holding a five-day average of 40.5 million. There has been plenty of talk about MU being an acquisition target given their current situation but that such talk is premature as it is unlikely any company would make a move prior to the jury’s verdict, something that may not be delivered until October.
On the business end MU is capable of overcoming the slowdown in demand for PCs and laptops, the products that depend on the chip maker’s DRAM modules as their primary memory. While company CEO Steve Appleton stated “I can’t tell you whether it will bottom out in the next couple of quarters, it’s impossible to predict” MU has seen many of their competitors fall and they remain the only U.S.-based manufacturer of DRAM modules.
What Appleton has predicted is that the slowdown in PC and laptop demand will force considerable consolidation within the chip sector. While this belief may be what many are using to back their acquisition argument Appleton was of course referring to Asian manufacturers. Appleton went as far as to say these manufacturers will have to exit the business or merge, commenting “Many of these companies are in really bad shape. It will probably be a catalyst in order to consolidate this industry a little further than it is today.”
An obvious concern about the Asian manufacturers is the fact they managed to force established companies like Intel Corp and Texas Instruments Inc. out of the DRAM market and it would be hard to see how consolidation would benefit MU. The ability to scratch out profits from chips is already difficult and with a consolidated and cohesive Asian market it may become impossible.
While the future of DRAM modules remains unknown MU won’t live or die by the technology as they are making significant strides in the NAND flash memory market, the chips that provide the storage in devices like Apple Inc.’s (NASDAQ: AAPL) iPad and iPhone as well as other tablets and smartphones. The company has said NAND sales are expected to exceed DRAM sales at Micron for the first time this quarter.
Last week MU introduced “the highest-density Serial Peripheral Interface (SPI) NOR memory available, launching 1 gigabit (Gb), 512 megabit (Mb) and 256Mb products in both 1.8V and 3V power supply voltages. Employing state-of-the-art 65nm process technology, the N25Q product family offers the highest-speed quad I/O in the industry and a full set of advanced features and small packages that improve overall system performance and time-to-market in networking, set-top boxes, automotive and a wide range of industrial, computing and consumer applications.”
MU has said the new product line will balance customer needs for cost-effective solutions at higher densities while ensuring compatibility among future chipsets, a necessary quality if the product line is to be successful.
Tony Eby, Vice President and General Manager of MU’s Embedded Solutions Group, highlighted the benefits of the product line stating “In addition to providing the world’s highest-density, high-performance SPI NOR memory, the N25Q family provides package and software compatibility across densities, from 32Mb to 1Gb. When combined with industrial temperature range, 1.8V and 3.0V power supply options, and the longevity of Micron’s PLP program, this product family provides an ideal solution for the SPI NOR needs of the embedded market.” What this product line really does is position MU for the future as analysts estimate that more than half of NOR revenue will be SPI by 2013.
As far as the antitrust litigation hanging over MU’s head there is reason to believe that they will survive the trial. While Rambus Inc. has alleged that MU along with Hynix colluded to drive its DRAM chips out of the market, costing the company billions, Intel Corp. managers who worked with the company on their RDRAM chips have gone as far as saying it was incompetence and laziness that doomed Rambus.
This is not to say that Rambus hasn’t introduced some potentially damaging evidence, specifically e-mails from employees at Intel, as well as Micron and Hynix that they claim shows a plot to stall production of RDRAM and provide an edge to competing products. Perhaps the most damaging e-mail comes from Linda Turner in 2001, then Micron’s vice president of international sales, in which she responded to concerns about the declining prices of standardized DDR chips saying “No problem! We want DDR to explode into the marketplace so have actually been requesting Infineon, Samsung and Hynix to lower their DDR pricing to help it become a standard (and drive Rambus away completely).”
Turner has insisted her e-mail was sarcastic and that there was no intention of driving an already depressed market down further but whether the jury sees it that way is yet to be determined.
