Since the beginning of September 2006 Micron Technology (NYSE:MU) shares have fallen 34%. Just last fall Micron was trading in the $18’s and today shares are in the $11 range. You would think a company with a market cap of $8.61 billion would fare better, but with a P/E of 40, 756 million shares outstanding, and the flash memory sector in jeopardy the share price is justified. To make things even worse on May 17th they announced they would offering $1.1 billion in unsecured convertible senior notes due June 1, 2014.
American Technology Research analyst Doug Freedman maintains his “Neutral” rating on Micron’s stock mainly due to a lower price estimate of $14, as losses are expected to increase in Q3. Freedman had this to say last week:
“We are lowering our estimates to reflect our expectation that the deal will cost Micron approximately $11 million per quarter (4 percent interest rate), which is reflective of recent convertible financings and the short maturity (2014) of the convertible. Micron also entered into a capped call transaction at prices 50 percent to 100 percent above the current market price. Capped calls help companies avoid the dilutive effects of convertibles. We believe the proceeds will help Micron continue to fund capital spending on IMFT, as well as on upgrade equipment. We do not expect any major acquisitions in the near-term, and believe the financing firms up the balance sheet during this prolonged pricing contraction more than anything else.”
So despite the negative Nancy vibe around Micron, the "Wall Street Professional", not to be confused with the ("Penny Stock Professional", Peter Leeds – super music by the way) is calling for $14 in the next year. According to Micron officials, the notes will be convertible by the holders based on an initial conversion rate of 70.2679 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of about $14.23 per share. The notes are to be used for "general corporate purposes, including working capital and capital expenditures", so besides buying chips with that, they’ll be buying pizza for the employees and throwing a few keggers every Wednesday until 2009 (we made this up so relax Micron HR Team). 
Micron still made the Fortune 500 list last year but at number 438, moving one slot from 439 in 2005. Still, they are a solid company despite what everyone else thinks they pulled in $408 million in net income last year on revenue of $5.27 billion. But Wall Street has just finished a extra large glass of "hater-aid" on Micron, so we aren’t seeing the shares move. It doesn’t help that SanDisk (SNDK) just got downgraded yesterday due to oversupply of flash memory that could pressure the stock in the second half of the year. Everyone knows, these companies like Micron, SanDisk, and Intel (INTC) all need to take a chill-pill on cranking out flash memory chips, there’s enough to go around people. So don’t you think they know that by now? These guys all know what’s going on and they aren’t about to let Wall Street keep their stock price stock down forever. They’ll start doing what they should do, making investors happy, cut production a bit, maybe trim some fat, the usual corporate fix-it moves and get MU shares back in the green.
Aren’t buying it? Don’t think it will happen? Do you still hate Micron?
Well, this article shouldn’t change your mind anyway, but it should get you thinking that "do you really think the management of these billion dollar companies are that dumb?" Sure some of the board members aren’t the brightest of stars, but these guys want to make money, and they won’t let the powers that be keep their share price down for months on end. When they cash out their mandatory 40,000 shares in September, they don’t want the stock price at $11, more like $13 a share.
Still think it won’t happen?
I’m willing to bet these corporate guys get their money, just like Snoop Dogg, everyone one of them probably bumps Jin and Juice on the way home from the office. They make sure the windows are up but when the chorus kicks in they all rap while bobbing their heads back and forth: "Laid back, with my mind on my money, and my money on my mind." Micron shares are going up in smoke, and that’s that.
Article written by: Frank Lara Jr.
Article posted on May 23rd, 2007
Disclaimer: None of the Stock Master staff owns shares, puts, calls, or any short or long interest in MU at the time this article was published. However we all have CD’s of ‘Doggie Style’ in the back of our cars.
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