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Electric Phred
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Have made bundles in rust belt. Have made-- and lost-- bundles in high tech. Former registered rep, business degree, doing vc and private company investments, while looking for stock picks on a regular basis.
  • Apple, Samsung And The Dwarves 3 comments
    Nov 29, 2013 5:26 PM | about stocks: MU
    Here's an article the SA editors turned down saying it didn't add anything to the betterment of understanding on Micron or its competitors. Humbug!

    As we Micron(NASDAQ:MU) shareholders thump ourselves on the back about our outstanding stockpicking abilities (this week anyway), we can give thanks this Thanksgiving that a bit of light is being shed on our company. But we should not forget that all of the memory companies are just dwarves playing amongst the toes of some very big giants. Bloomberg gives me the following company equity market capitalizations:

    CompanyMarket Cap, $ billions
    Apple(NASDAQ:AAPL)491
    Samsung(GM:SSNLF)206
    Intel(NASDAQ:INTC)119
    Micron(MU)22
    SKHynix(GM:HXSCF)21
    Toshiba(OTCPK:TOSBF)19
    Sandisk(NASDAQ:SNDK)15
      

    Subtotal MU,HXSCF

    TOSBF, SNDK

    77

    Look at that, all of Samsung's competitors in the memory space have a combined market cap of only about one third of Samsung's. And just for fun put all of the memory guys together with INTC and Samsung and that conglomeration has a smaller market cap than the largest memory buyer in the world, Apple.

    Why do we care? I find it helpful to periodically look at rankings like this. Its interesting to see who is moving up in the rankings-- Micron! It can give an idea about how the industry is changing and is one way to take the temperature on whether more consolidation is likely.

    With the massive scale of the two largest smartphone manufacturers, Apple and Samsung, is their supply chain hefty enough to grow with them? Bernstein's great stock analyst, Mark Newman, has suggested that Hynix is weakest in flash memory and points out that they have floated the idea that they would be interested in joint ventures. I have suggested that Sandisk/Toshiba are at a disadvantage going it alone in flash memory when all of their competition sells both DRAM and flash. And I've floated the idea that perhaps the largest memory buyer in the world, Apple, should buy the largest non-captive memory maker in the world, Micron. And our esteemed dean of semiconductor stock wizardry here on Seeking Alpha, the great Russ Fischer, has said that perhaps Intel needs to own Micron as memory packages get more complex, closer to the CPU, and even part of the CPU System on a Chip in some instances.

    Conclusion. Our newest cheerleader, David Einhorn of Greenlight Capital, likes consolidating businesses. Commenters on some of the articles mentioned above have had a couple of problems with Micron being considered as a participant in a merger & consolidation dance: a) they think the market cap of Micron has moved up too much and/or they want it to move up more before an exit via a takeover, and b) antitrust regulators would never allow it. When you look at the relative rankings in the table above I think it answers both questions: Micron's size is tiny in the general scheme of things, and antitrust regulators should be worried about constructing a sizeable counterbalance to the Samsung behemoth.

    Will more consolidation happen? I think so but couldn't tell you when.

    Disclosure: I am long MU.

    Stocks: MU
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Comments (3)
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  • Retired Securities Attorney
    , contributor
    Comments (3031) | Send Message
     
    Phred,

     

    Nice analysis.

     

    A thought. Maybe both you and Russ are right. Maybe Apple should buy both Micron and Intel. It's got the market cap and cash to do it for both stock and cash or just stock.

     

    Apple wants to design its own system. What if it could also design the chip to run that system on the lowest node, e.g., fastest performance/lowest power draw. Together, it would be something Samsung could not compete with. Samsung would be relegated to leftovers.
    You've already made the argument for Apple buying Micron.
    9 Dec 2013, 10:09 AM Reply Like
  • Electric Phred
    , contributor
    Comments (852) | Send Message
     
    Author’s reply » RSA--

     

    thanks. Dunno why SA was so down on this article. I think a periodic look at market caps is really helpful.

     

    Yes, your thought had occurred to me. Lots of posters, with no experience in antitrust methinks, are fond of saying "It could never fly for antitrust reasons." Clearly at least an Apple micron tie up could work. Dunno about an Apple/Intel/Micron combo however. I'm fascinated that analysts are already citing their Herfindahl-Hirschman Index (HHI) analysis. Gee do you suppose their investment banking arms are asking questions of them? Here's Jeffries just recently: http://bit.ly/J76I3k and Morgan Stanley did a long bit on their HHI analysis sometime last spring. Odd stuff for stock analysts to be writing about if there wasn't a whiff of some sort of combo in the air.....
    9 Dec 2013, 10:43 AM Reply Like
  • Retired Securities Attorney
    , contributor
    Comments (3031) | Send Message
     
    Phred,

     

    Maybe it was too short for an SA article and they didn't want to say that.

     

    Apple is losing market share to Samsung. I assume that Apple is looking for the "whys" of that and what it can do about any of them.

     

    One why is Samsungs's high level of integration. The can custom build a part to support an end-use product. For smaller end-use runs, they can "tweak" the manufactured part.

     

    Also, since they make more memory than they use internally, they can cooperate in holding the market price high so that their competitors have to pay a high price for a component.
    Samsung will care less about gaining market share by lowering prices that about keeping prices high even at the cost of losing market share. They can always just keep the excess in inventory.

     

    It seem to me that Samsung's business model is working. Look at how they are growing and taking over the market. Apple should consider adopting it. First by buying Micron. They by buying either Qualcom or Intel.

     

    If Apple or Intel doesn't hurry up, Micron is going to get a lot more expensive for them. Just my opinion, for whatever that's worth.
    9 Dec 2013, 11:26 AM Reply Like
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