Ross812

Hi All, This is my first post and I am very excited to join the board as I have spent more time than I care to admit reading the site. One of my hobbies is building custom computers for family and friends; in all, I have built close to 40 computers and newegg.com is making out with 20k in revenue! In the last year I have discovered the benefits of the new Solid State Drive (SSD) technology. Traditional (using traditional in reference to technology just seems wrong) Hard Disk Drives (HDD) have seek times of roughly 9 milliseconds versus seek times of .01 ms for SSDs. The low latency advantages really add up when booting or loading programs. Boot times are reduced from 45 seconds to under 15 seconds and large programs load almost instantaneously. The performance gains from SSDs are such that I foresee all storage eventually moving to solid state in the coming years. SSDs are created by placing NAND Flash modules in an array so they work in tandem to store information. Think 8 flash drives connected to a splitter so they work together. SSD technology has come a long way. Drive instability has been corrected by high quality NAND flash memory and improved memory controllers (processor on the SSD). I started researching the manufacturing process involved when creating SSDs and discovered cost effective high quality NAND Flash is the commodity holding back the many SSD manufacturing companies. Instead of buying expensive flash, the smaller companies have been trying to improve their memory controllers and utilize cheap flash memory. This can only go on for so long because cheap flash memory (created with a 50 nm process) has a low memory density and limits the size of the drives and prevents costs from coming down due to raw material cost per gigabyte. I discovered Intel and Crucial (Micron) are the only companies to use high quality 34nm NAND flash memory in their SSDs. I did some digging and found Intel has access to their NAND flash memory from a company called IM Flash Technologies which stands for Intel-Micron Flash Technologies. The IMFT was a partnership created between the two companies in 2006 to create the best flash memory available on the market. The partnership is 51% Micron 49% Intel. IMFT sells flash memory to Intel and Micron at cost while receiving intellectual property concerning the latest technology and manufacturing processes from both companies for their mutual benefit. I looked into Intel (INTC) but I think Micron (Mu) is a much better investment for SSD because they are not focused on the CPU market. Mu stock appeared to actually be selling at a discount so I dug deeper to discover the reason for the depressed stock price. The price per share appears to be depressed for two reasons. An impending trial scheduled for January 2011 and poor forecasts for DRAM sales (their main revenue stream) next year. The court case concerns anti-trust (AT) issues and price fixing conspiracy between Mu, samsung, and Hynex. The suit was brought by Rambus. Rambus contends Mu, Samsung and Hynex fixed prices and pushed their DDRX ram to become the new standard over their own RD RAM. Samsung and Hynex both settled out of court for 500 million and 280 million respectively with Rambus but Micron is still holding out. They do not have a projected max loss in their annual report. I have heard the maximum they could be liable for is 4B (1.3 billion subject to trebling) but the more likely scenario is a settlement for somewhere in the 300-500 million dollar range. Rambus is by no means a victim here as they were conspiring with Intel to corner the market with their own RD ram but were foiled when DDR ram introduced on AMD based motherboards hit the market first and turned out to have better benchmarks than Rambus's product. Mu may have been anti competitive but Rambus could be unable to prove financial loss. Mu already settled a criminal case with the DOJ concerning the AT trial. Mu agreed to pay 200 m in 67 mil installments over 2 years for the case. Links to legal documents and evidence: http://rambus.org/legal The DRAM market is projected to soften next year but Mu has revealed their plans to convert many of their DRAM facilities to produce higher margin NAND flash. The flash market should explode as SSDs gain market share. IMFT is the only company cable of producing their new 25nm flash memory (most SSDs are produced with inferior 50nm flash). The best article I could find regarding the 25nm process is by legit reviews: http://www.legitreviews.com/article/1179/1/ 25nm technology will significantly decrease their costs to create flash memory as smaller wafers can be used. Another article from Daily Tech: http://www.dailytech.com/IMFTs+25nm+NAND+Flash+Will+Cut+Production+Costs+in+Half+Spur+New+SSDs/article17549.htm IMFT says 1TB 2.5" SSDs will be possible in 2010. IMFT had problems when shrinking the 50nm process down to 34nm because they skipped the 43nm node. This time 34nm to 25nm should scale easily without process problems. Samsung released their 20nm class nand flash this April and reports they will start shipping the flash later this year. Samsung says their flash is 20nm class but does not specify what nm process they are using. Reviews have suggested that Samsung is still behind IMFT because if they were producing sub 25nm flash they would be sure to let the world know there is a new NAND flash leader in town. SO WHERE IS THE MOAT? IMFT, 51% owned by Micron, has shown to be the leader in NAND flash technology. At the very least their manufacturing process is 4 months ahead of their next competitor Samsung. In actuality IMFT is probably at least 8-12 months ahead of Samsung's manufacturing process because IMFT started shipping 25nm flash in mid to late February 2010 and Samsung claims they will start shipping by the end of 2010 Oct-Dec. This is assuming Samsung's technology matches IMFTs technology. In true Intel fashion IMFT continues to shrink their NAND wafers on a 9-12 month time frame meaning IMFT should stay comfortably in the lead. Micron and Intel have the best nand flash out there but what is their competitive advantage? If you read into IMFT’s articles you will notice the company was formed in order to combine "Micron’s leadership in process and product technology with Intel’s multi-level cell technology and history of innovation in Flash memory to successfully compete in the NAND Flash memory business over the past several years." Micron has the brawn and Intel provides the brains. Micron can acquire raw materials and equipment at reduced cost from their broad network of foreign and domestic suppliers. Intel provides R&D to keep IMFT a step ahead of the competition. The largest moat MU and INTC receive from their partnership is SUPERIOR nand flash memory AT COST. Samsung can produce all the nand flash memory they want but they are going to mark it up before they sell it to OCZ, G-skill, A-data, Supertalent, Western Digital ect. Thus far, the state of the art technology has been too expensive for all companies but Intel and Crucial (Mu) evidenced by other companies have opting for cheap and inferior 50nm nand flash memory for their SSDs in order to keep acceptable margins. What I do not like about micron: -DRAM and NAND Flash are commodities. -EPS have been very inconsistent over the years as DRAM prices have fluctuated all over the place. -The number of shares has escalated almost 300 million in ten years. (30%) -Debt in 10 years has gone up about 200 percent. -Book value half of what it was ten years ago. A poster on another board brought up: -“I don’t like it when management issues more shares, more debt, and Holds on to cash. Those three things make me very leery.” Earnings over the last 10 years are inconsistent but if you know the landscape of the DRAM market they are predictable. Major changes in RAM type increase margins and make the business quite profitable for 2-3 years. This is followed by a time when margins decrease as the technology is being phased out. Right now (as of December 2010) we are in the 2-3 year cyclical upswing in the RAM market (though computer sales are predicted to be down). Add to this the introduction of the SSD. SSDs will become a commodity product in 5-10 years but for the next few years Mu's moat is their joint partnership with Intel to produce the best flash memory in the world and use it in their SSD technology at cost which allows MU to produce superior drives cheaper than any of their competitors. Mu's stock price is low right now because of uncertainty about the AT trial (which I think is overblown), the semiconductor industry being out of favor, and shock from a rough 2008 and 2009. If Mu, selling at $7 today, makes 1.9-2.3 a share 2010, 2011, and 2012 and holds $2 in cash a share with a tangible book value of $7.30. Baring a catastrophic court ruling in the AT case Mu is worth at least 8x earnings. Assuming they must pay 2B in damages (I believe absolute worst case) over 3 years; they are still making $1.34 a year. This yields a worst case stock price of 10.72 in 1 year. I do not trust management whole heartedly but I believe the prospectus may warrant an investment. I would be very interested to hear everyone’s opinions and I am very excited to join the forum!