SA readers of articles on Micron (NASDAQ:MU) and some institutional shareholders are becoming justifiably steamed about the company's lack of transparency and shareholder unfriendly nature. One would think this is still the days of founder JR Simplot holding impromptu 6am board meetings at an Idaho diner, and confiding in only his cronies what is really going on. Investors already at the table, or especially those considering an investment, should realize that while this is a great company, the Elpida acquisition is spectacular, and while the stars are extremely well aligned for the company in the memory markets just now, the actions and inactions of management with regard to transparency and investor relations will remain a depressant on value realization. Perhaps discussions such as this will serve as a wake up call and help ward off the attentions of Carl Icahn, Greenlight Capital, and a host of governance funds. I once worked for such a fund and Micron isn't ready for, and hopefully doesn't need, their type of treatment.
What are some of the sins?
What follows is a partial listing of annoying items. Management should take heed; I don't think any of these corrections would put the company at a competitive disadvantage or reveal trade secrets:
- The company has yet to publish a date for its fiscal year end earnings announcement. Most respected companies get a schedule out at the beginning of the year and live with it. It's like church on Sunday, or Temple on Saturday. It gets the whole organization pulling in the same direction knowing management must enter The Confessional of Earnings on a set date. The SEC mandates a maximum date, and the clock is ticking down on the mandated 8k update for the Elpida acquisition. How about picking either of those dates? Sure the Elpida purchase accounting is difficult but that space ship didn't just land suddenly in their backyard.
- At the Citi conference on September 3, Kipp Bedard, VP of Investor Relations, made what I believe was a selective disclosure of material non-public information. His rosetta stones allowed me to connect the dots and determine that the company believes they will make $3.50 in EPS, as I've described in this article. The shareholder friendly and perhaps legal thing to do would have been to release these "fireside chat" remarks in an 8K as the company has on so many previous occasions. Don't just let those who want to wade through a Citi transcript or replay know, let the world know! And while we are at it I am stunned that Glen Yeung and his research team at Citi didn't put these remarks out in an update on Micron. But then again, Micron has treated the analyst community almost as poorly as its shareholders.
- Every corporate officer should read the excellent analyst day presentation by Sandisk (SNDK). Its sad, but I've learned more about Micron's NAND markets by reading Sandisk materials than I have by reading Micron's. Gee, some of the axes on the charts are even labeled! And when they have an analyst day they have enough chairs for everyone, they have audio that works, and slides that are in sync with the speakers. The Sandisk IR web page has handy things like a "Convertible Note Dilution Calculator" (something which baffles Micron's analysts, in part because management has yet to explain any repurchase program or conversions to date). While we are at it, I'd be just fine if we swapped our CFO Ron Foster for SNDK's Judy Bruner. SNDK shareholders love her and with good reason. Golly, now that Yahoo finance tells me our market cap is $17.93 billion and Sandisk's is $14.51 billion (with a bunch of cash) maybe we ought to buy the whole shooting match and rebalance our portfolio with a bit more NAND while we are at it.
- Many times Micron is double super secret about things which absolutely do not matter. A great case in point was revealing when the Elpida transaction would close. Instead of merely informing investors and Elpida creditors it would happen on July 31st, they remained quiet. Then, a brilliant legal and IR department allowed a web page to slip out on July 26 entitled "Elpida is Now Micron" and bearing the date July 31. The page was quickly pulled down but not before a screen shot had been saved and emailed to Micron, urging them to make full and timely disclosure. This sad caper was revealed in one of Russ Fischer's great articles on July 28.
- Micron should listen to shareholders and analysts. A case in point was the howling of rage and frustration with Micron's magnificently stupid hedges on the Elpida transaction. Not only did they not listen, they renewed almost precisely the same hedges when the first batch were expiring. Instead of just going out and buying protection against a strengthening Yen, some genius in Micron's treasury sold offsetting contracts against the dollar strengthening to pay for our "insurance". While the correct type of insurance would have cost into the double digit millions, it would have prevented a $250 million CASH loss on these hedges. And sure the earnings effect will probably be reversed, but where's our CASH? Micron could have used it to pay a $0.12 per share dividend this year, and a $0.13 dividend next year. And yes, Becky Sue, there are still funds and institutions, and my dad, who like to buy stocks with dividends. Golly, didn't that Sandisk outfit just establish a dividend? For an internationally spread operation like Micron, its unfortunate to have become the laughing stock on forex trading desks.
- Micron's suppliers know how much silane gas and silicon we buy and know how our business is doing. The employees can see how much product is going out the door. The company's equipment vendors know what gear we are buying and our expansion plans. But the shareholders are left in the dark on the magnificent Elpida acquisition. Management says they need audited financials and an appraisal before they can issue a pro-forma. But they issued the one and only pro-forma with numbers now a year old without either an appraisal or an audit. At the latest, they should have done this at their August 9 analyst day. Having this information out would help our customers determine our financial position and manufacturing might as they consider placing longer term and higher priced orders dislocated by the Hynix Wuxi fab fire. Having a current pro-forma out would have allowed analysts to make intelligent updates to their forecasts (rather than these meat ax crude attempts by Electric Phred).
A call transcript I'd like to read....but never will?
Imagine a shareholder friendly, Wall St. analyst favorite company, who called a special conference call to update shareholders on the effects of SKHynix's Wuxi fire. Hopefully no sensitive competitive information gets revealed:
Warning!! the following is a fable and a figment of my vivid imagination!!
"Mark Durcan: Good afternoon and thanks for joining us. This call is to update you on what we see as the industry effects of SKHynix's Wuxi fab fire on September 4. We will touch on some of the effects on us. We won't be taking questions on earnings since we will all be back together on...what's the date Kipp?
Many of you have probably seen estimates on what the fire has done to the markets, such as Goldman Sach's baseline estimate, published 9/18/2013, which estimates this quarter's global industry wide DRAM demand will be 104% of projected supply. We've seen estimates as long as three quarters and as high as xx%. Knowing a bit about fabs and the little that we've read and heard, our own guesstimate is that it may take SKHynix xyz months to be fully operational, and that's what is guiding our contract discussion.
In light of the DRAM disruption many of you have asked about our plans and progress to convert our Singapore NAND fab to a dual use facility. Those plans are fully on track and will not be slowed down by this temporary disruption. We anticipate being able to run either NAND or DRAM on this line by January 1, 2014. We should caution you, as we have in the past, that we don't anticipate frequent changeovers given the attendant time and start up yield losses. We've designed this line with even more flexibility than what we understand is in place on SKHynix's M12 line. We were surprised by their announcement to swing this line back to DRAM, given what we've just mentioned, and believe it emphasizes that they are actually expecting a rather long road back to full utilization at Wuxi.
One of the big positives is that we've been visited by people whose names we didn't even know at a lot of major OEM's. These Corporate Risk Officers are finally giving us credit for our geographic spread with fabs in the USA, Taiwan, Japan, and Singapore. They are finally rewarding that geographic diversity with some of the longest and largest purchase orders in the company's history. They understand that we aren't immune to a Hynix type disaster, but should be more resilient if one happens. PO's are being cut at significant premiums to the spot market.
On the negative side, we've learned through rumor and some eyewitness reports that the Wuxi fire occurred in the xyzzy section of their fab, and may have started in an odd way. Our own Corporate Risk guys determined that we were susceptible to the same problems and we are spending $xxz to retrofit all of our facilities by October 1 so we aren't prone to the same failure modes.
Let me tell you about a handful of contract discussion and renewals, without getting into too many sensitive specifics. 2 customers came to us and tore up existing contracts, renewing for double the initial period at higher prices. Several customers with continuing contracts have already entered into much larger than normal contracts. In fact, as mentioned previously, we've just inked some of the largest and longest duration PO's in the company's history. We don't disclose our ratio of spot to contract sales, but I can tell you for the next six months spot sales will be at the lowest level since I have been here. We told you on analyst day that we were no longer as sensitive to the spot as we once were, and this is living proof of that. I am just delighted to give up what we only view as a bit more upside, over the next couple of quarters, for almost total immunization against a downturn in spot and contract pricing over that same period. This gives us an eye of the storm in which to fully integrate Elpida, which is going nicely.
I should also tell you that we have been in discussions with certain OEM's who would like to pair their PO's with significant minority equity stakes in our company. While we've come to no firm agreement, what's being talked about are substantial investments and would go a long way towards paying down our debt and allowing us to launch a repurchase program and dividend. As we said at analyst day, we believe a debt paydown, a dividend, and a repurchase program should reward us with a higher multiple and these initiatives remain a priority. Each of these equity discussions requests periods of exclusivity and most favored nation pricing on some of our technologies which we are reluctant to give. We expect to have an update for you on our earnings call to be held on September, I mean October....what is the date Kipp?
Thank you all. We'll take a few supply disruption questions but save anything on earnings for our next call on....what's the date Kipp?" Remember, like Snodgrass and Ballmer this transcript is all just a fable.
Micron needs to court its shareholders and analysts. Both need to be onboard when at some point Micron will be back in the capital markets to fund 3D NAND, PCM shrinks that will allow them into every smartphone in the world by providing days of battery life, the rollout of the Hybrid Memory Cube, and our new fab in Iceland where the girls are beautiful and the geothermal electricity is cheap (Oops Kipp, was the Iceland thing one of our Double Super Secrets?). Micron needs to be the easiest to analyze company amongst its peers. Micron needs to drop the culture of secrecy for secrecy's sake where secrets don't matter. Micron needs to become more transparent and shareholder friendly and will be rewarded when the world understands the tremendous value which is being hidden and obscured.
Kipp are you listening? Micron board are you listening?
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.