Micron: SK Hynix Earnings Show What's Ahead

| About: Micron Technology (MU)

Micron (MU) Technology's stock has been under attack the past few days for no apparent reason. Well, hang on fellow Micron investors, that attack might be as simple as panic selling by Steve Cohen's SAC hedge fund. Some recent numbers indicate that Mr. Cohen held 18 million shares in Micron stock and $65 million in Micron call options. That would make Micron the largest holding in SAC.

While Stevie might be sweating the rare SEC attack, the more important news for Micron is the SK Hynix earnings report of yesterday.

Hynix is almost a mirror image of Micron/Elpida except Micron has 43% more wafer output, a broader product line and, with the assets of Elpida written down to near nothing, far less depreciation than Hynix.

So, Hynix reported a sales increase of 41% from the first quarter to the second quarter; $2.5 billion to $3.9 billion, and net profit ballooned up over 5 times, from $160 million to $850 million.

Operating margin for Hynix was 28%. Hynix said that DRAM prices were so high that they might not go much higher. With earnings like this, I can live with that.

One can derive a July 31 closing date for the Micron-Elpida acquisition from documents on the Elpida website. Scroll down to the last paragraph, the legalese decodes into "July 31, 2013."

Since Micron/Elpida is in the same market with the same products, a guy could have some fun speculating on what Micron's earnings will look like. With 41% more wafer output you could multiply the Hynix sales numbers by 1.41 and get $5.5 billion sales for Micron. All things being equal (which they aren't), Micron should have the same operating margin of 28% or $1.54 billion. The difference being that Micron will have far less depreciation to deduct from gross profit, so we could be justified in using a higher operating margin for Micron of something over 30%, but 28% would be just fine. We'll have to guess at the number on Micron shares because of the convertible instruments, but 1.2 billion should cover that. Using the same ratios that have just been published for SK Hynix, Micron could earn $1.28 per quarter when combined with Elpida. Annualized, that is at $5.13 per share.

To support the SK Hynix numbers as no fluke, Inotera, a 35.5% owned subsidiary of Micron, reported a second quarter profit with sales up 47% from the first quarter.

None of the analysts have updated their numbers yet based on the SK Hynix results. That will be coming, but remember you heard it at Seeking Alpha first.

Buy Micron on this Steve Cohen induced price weakness.

Disclosure: I am long MU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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