Micron Sending Out $550 Million For DRAM J-V (MU)

By Douglas A. McIntyre Updated Apr 6, 6:07PM EDT · Published Apr 21, 8:39AM EDT

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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

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.