Memory chips (MU, SMOD)

Micron (MU) is really cheap for a company of its size.

  • Forward P/E (fye Sep 2, 2012): 6.62
  • PEG Ratio (5 yr expected): 0.63
  • Price/Book (mrq): 1.00
  • Enterprise Value/Revenue (ttm): 0.87
  • Enterprise Value/EBITDA (ttm): 2.02

Book value is mostly tangible, and earnings & cash flow are very high in relation to market cap. It’s got a lot of cash: $3 billion in cash and another $3 b in receivables and inventory. Total liabilities are only $6 b. Its profit margins are around 20%.

However, 2010 seems to have been an unusually good year: 2010 Was a Boom Year in Chip Sales and One Tech Buy, One Tech Sell. Profit margins will decline, but the low valuations suggest negative expectation is already priced into the stock.

SMOD reported results last week, reinforcing the thesis that DRAM prices are pointed down: “Smart Modular said prices of DRAM chips were decelerating at 20-25 percent, hurting profits, especially in its key Brazil markets that account for over half of its revenue.” (Weak DRAM prices hurt Smart Modular results, outlook) Its stock is similarly cheap, although likely to be volatile due to the recent report. The problem may be more acute in Brazil than elsewhere, and perhaps SMOD’s other business segments are worthy of investment (the-smart-money-is-buying-today)

Micron is pretty much a pure play on memory chips. Smart Modular is more eclectic:

SMART Modular Technologies (WWH), Inc. designs, manufactures, and supplies value added subsystems to original equipment manufacturers worldwide. Its subsystem products include memory modules; solid state drives (SSD); and embedded computing and thin film transistor-liquid crystal display (TFT-LCD) products. The company operates in two segments, namely Memory, Display, and Embedded segment, and Adtron segment. The Memory, Display, and Embedded segment offers dynamic random access memory (DRAM) modules, flash memory cards and modules, and SRAM based SIMMs, DIMMs, and SO-DIMMs for industrial and other applications. The SRAM modules are also used in communication systems, point of sale terminals, electronic verification equipment, industrial instrumentation, medical instruments, disk drives, servers, graphics products, and workstations. This segment also offers eFlashTools and FlashTools, embedded computing products, and display products targeting gaming, kiosk, ATM, point-of-service, digital signage, and industrial control systems. The Adtron segment offers products, such as XceedLite, XceedUltra, XceedUltraX, Xceed IOPs, XceedSecure, XceedSCSI, and Xcel-10 that are industrial grade storage products. These products target defense, aerospace, industrial automation, medical, transportation, and enterprise industries. SMART Modular Technologies (WWH), Inc. also offers custom supply chain services, including procurement, logistics, inventory management, temporary warehousing, kitting, and packaging services. It sells its products directly and through a network of independent sales representatives principally to major OEMs that compete in the computing, networking, communications, printer, storage, and industrial markets.

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