Roy Howard

Mellow Micron

Micron was diversifying a couple of years ago. They were very excited about the image sensor business. Then about a year ago they started talking about spinning off or divesting the image sensor business. Months passed, nothing happened. Then they started talking about focusing on the core memory segment and getting out of non-core businesses -- which was a red flag and the beginning of a big down leg in the stock.

Gross margins in the imaging business are running at 29% (down from 35% last quarter), which puts them on par with competitor Omnivision. When you consider that gross margins were damn close to zero for Micron, the imaging business certainly does look better than memory and I think the company sees selling it as a necessary evil -- it's <20% of sales compared to the 80+% that's memory. They can't ride the stock up on it -- the imaging business just isn't big enough to sustain them. They need to sell it to fund the larger memory ops.

The real problem with Micron here is they're in an extremely capital intensive business and they're lugging a boatload of debt. They aren't getting out of the memory business. They can't expand into new markets really -- they just cut their capex dramatically and are trying to conserve cash. I think they're far more likely to continue to try to divest the imaging business to get money to sink into memory.

Your suggestion that they need to further diversify is idealistic. They can't afford it. Their stated strategy and really the only option they really have is to pare down costs and try to outlast their shakier competitors in the downturn.