Micron also has a fair amount of debt on its shoulders, just like many other tech companies. Its response to the situation is an interesting one: it plans to increase its debt by offering $870 million notes to institutional buyers. This may seem like a dubious move, but it is necessary. The move will improve Micron's financial position substantially and leave the company far better off for future trading. In addition the debt levels that it is currently experiencing are what can be described as "comfortable" which essentially means the company is not in a significantly worse position than it was before.
This being said, Micron is still in a negative net cash position and it seems that there is limited opportunity for growth in the future. This raises the concern of the company's liquidity. Another factor that comes into play is that there is a decreasing demand for products like memory chips, one of Micron's main sells.
Earlier this year it was projected that Micron would begin to grow once more. This was due to the lawsuit it settled with Oracle (NASDAQ:ORCL) regarding unfair competition. This led to an increase in Micron shares, putting the company back in the game. As a result, many investors consider Micron to still be a good play, but others claim that the company's weaknesses outweigh the few strengths and positive attributes that can be seen.
Micron is not the only company in its field that is struggling at the moment. Recently, SanDisk (SNDK), a major competitor of Micron, led the way in a decline for most tech companies and was, for the moment, described as the "top decliner." The declines are thought to have been triggered by the company's reduced sales forecast for the first quarter. This is too in relation to the decreasing demand for products produced by tech companies such as Micron and SanDisk.
However, the news is not all bad for Micron and SanDisk, which were both reported to have benefited from a high demand for mobile devices. Companies that produce chips are suffering from major declines at present due to the reduction in a need for such technology. However those companies, such as Micron and SanDisk, have successfully managed to focus attention on the mobile phone market and have benefited from the move. The need for semiconductors in phones has been a major catalyst in keeping this industry alive. In fact, the only companies who can be seen to be experiencing growth in the semiconductor market at the moment are those companies who shifted focus to phones. Fortunately, Micron was one of those companies and is therefore slightly ahead in comparison to several other stocks in the microchip industry.
If you compare Micron to companies like Cypress Semiconductor (NASDAQ:CY), which has experienced huge drops in its share price over the last few weeks, reportedly due to slow and weak orders, it looks strong again. Investors in Cypress are expecting nothing but bad news, and there seems to be little hope that this Micron competitor will be able to make a significant comeback soon.
Elpida Memory (OTC:ELPDF) has been removed from the running altogether due to the need to file for bankruptcy. It has been removed from the Tokyo stock exchange and has been described as "the biggest corporate failure in Japanese manufacturing history." While it's always encouraging to see a large, international competitor fail, the news is instead an indication that the industry as a whole is starting to collapse. There will be fewer spaces for microchip companies to continue on and those that do will have to be the strongest, most diverse and properly handled of the bunch. Will it be Micron?
Unfortunately, Micron cannot continue to rely on the fact that its competitors are all doing poorly in order to keep itself afloat. There are those competitors who are still ahead of the game, such as Texas Instruments (NYSE:TXN). Recently it released its first 4-A/8-A and 4-A/4-A single-channel, low-side gate drivers that are faster than any other in the industry and that effectively replace discrete gate driver circuits that use bipolar junction transistors. New innovations like this can give Texas Instruments an advantage. The company is now marked as a leader in increasing efficiency, reliability and power-density in applications.
Another competitor which has recently released a new product is OCZ Technology (NASDAQ:OCZ). The product in question is the Indilinx Everest 2, a next-generation SSD platform. Boasting unprecedented transactional performance and the most advanced flash management capabilities, this is really one of the best achievements that the company has made of late, an ominous sign for Micron.
Intel (NASDAQ:INTC) also remains a serious competitor for Micron. As the world's leading semiconductor vendor for the 20th year running, Intel experienced its highest market share last year and is expected to do nothing but improve on that record in the years to come.
I went through the various competitors of Micron for a reason here. I want to illustrate that many of these companies are prospering and many are failing. Micron, in recent press, has been part of the second group. Times are tough for microchip producers and new technologies are changing the industry quickly. Micron will have to keep its innovation standards high to make it into that first group of companies that are finding success in this tumultuous market.
Micron has a great history of success. Its impending note sale will help bring in cash to pay off the company's debts, but it will be the keen investment of this new money, hopefully toward a focused round of technological innovation, that will keep the company afloat.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.