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Don't tell Samsung and Micron, they've been printing extraordinary profits the last two years in the memory segment. Micron went from being a basketcase for ye

Don't tell Samsung and Micron, they've been printing extraordinary profits the last two years in the memory segment. Micron went from being a basketcase for years and a relatively cheap acquisition target for the Chinese (state owned Tsinghua Unigroup tried to buy them in 2015). To generating a $5b profit in 2017 on $20b in sales. In 2018 that skyrocketed to $14b in profit on $30b in sales, epic margins. Micron's balance sheet improved from a positive $11.8b in net tangible assets, to $33.8b in the latest quarter. They cut their long-term debt from $7.1b to $3.3b over that time. Samsung has an even larger memory business than Micron. I wouldn't be surprised if they cleared $18-$20b in profit in 2018 on memory alone. Amazing things happen to pricing and margins when you consolidate an important segment down to only three players. If you slash Micron's 2018 profit by 50%, they'd still only be sporting a six PE ratio presently and would still generate $7b in profit. Memory will be a tremendous business until / unless the Chinese bust up the party (as they hope to in the coming years).

gumby 8y ago
My point is that you're describing what makes the market so terrible. It's a commodity product that's stamped out in high volume. The capex is high but marginal cost is low. So you get whipsawed by price swings, plus when prices are high, someone with cheap access to capital (either through government support or simply a period of secular low rates, as today) can build a factory and demolish whatever pricing you're getting on your chips. This is precisely what made Micron a basket case. If you look at the history of the DRAM business it's been a continuous, expensive string of collapse and recovery. Where are the Japanese giants who used to dominate the business? Where are the US titans that used to exist (Micron itself was a late entry thanks to Simplot's capital). Etc. Think of the steel business; DRAM is no different except its cycles are faster. 25 years from now we'll all be running cheap East African DRAM from factories funded with oil money and built in regions of low cost land and lax safety & environmental standards.

gumby 8y ago

My point is that you're describing what makes the market so terrible. It's a commodity product that's stamped out in high volume. The capex is high but marginal cost is low. So you get whipsawed by price swings, plus when prices are high, someone with cheap access to capital (either through government support or simply a period of secular low rates, as today) can build a factory and demolish whatever pricing you're getting on your chips. This is precisely what made Micron a basket case. If you look at the history of the DRAM business it's been a continuous, expensive string of collapse and recovery. Where are the Japanese giants who used to dominate the business? Where are the US titans that used to exist (Micron itself was a late entry thanks to Simplot's capital). Etc. Think of the steel business; DRAM is no different except its cycles are faster. 25 years from now we'll all be running cheap East African DRAM from factories funded with oil money and built in regions of low cost land and lax safety & environmental standards.