Micron and Qimonda Should Actually Profit From Semi Equipment Slowdown

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 |  Includes: MU, QI
by: Doug Stevens

The fallout from the weak forward guidance from semiconductor equipment maker Lam Research (NASDAQ:LRCX) has wrongly hit DRAM memory manufacturers as well Thursday. Micron Technology (NASDAQ:MU) was down 3.1% and Qimonda (QI) was down 4.5%. What the market doesn’t seem to realize is that the news was quite positive for these memory players for two reasons:

* First – most of the investment needed to support the new Vista-able PCs has already been made. New Capital Expenditures planned therefore are actually quite modest (as Qimonda pointed out in its last conference call). This means cash flow will be stronger and future depreciation lower.

* Second – it also shows a restraint by chip manufacturers to not overbuild capacity. Part of the market seems to expect that the memory players will oversupply the market in the second half of 2007 after Vista launches. So far, the tightness of DRAM supply and this recent equipment supplier news points to an opposite result.

With Microsoft putting the final touches on the Vista global consumer launch, this is probably not therefore a time to ditch Micron or Qimonda.

The Wall Street Journal today gave a glimpse of what upcoming earnings announcements will show. In an article about DRAM memory player Hynix (Hynix Creditors Weigh Stock Sale), their VP of investor relations said that Hynix will likely beat market expectations when it reports fourth-quarter earnings Jan. 31, helped by strong sales in mainstay dynamic random memory chips."Compared with the third quarter, the figures are very, very good on both operating level and the bottom line," Mr. Kim said. "Sales also made handsome growth."

Disclosure: Author is long QI