SKHynix plant fire might see Micron Technology, Inc (NASDAQ:MU) profit
On September 4, a fire at a SKHynix plant, in Wuxi, China took the unit offline. This blaze erupted in the unit’s computer-manufacturing fabrication facility and around 12% of the DRAM supply in the world comes from here. While some reports say that the restoration will take place soon, others are not so optimistic and say that it will take months for the facility to be fully-operational again.
The Micron connection
How exactly does Micron Technology, Inc (NASDAQ:MU) feature in this fire fiasco? The company is extremely leveraged to DRAM. This is especially true since the time it acquired Elpida in 2013 July. In the Q3 that ended May, the company reported that close to 47% of it’s almost $10B annualized revenue was accounted for by DRAM. We are aware than almost 100 percent of Elpida’s annualized-revenue of over $4.2B is DRAM.
The spot market effect
This also means that if the consolidated DRAM revenue of $8.9B were to be marked-up by the 44.5% spot-market increase, the revenue would rise by $3.96B. Even if we were to back-off this figure a little bit and presume that the increase in DRAM revenues will be only 25% it would amount to $2.25B. Dependent on the convertible-note conversions, with almost 1.1B shares outstanding, that would amount to a yield of $2.02 EPS.
Getting back to the Wuxi restoration, let’s assume that it takes a minimum of 3 months and the chip markets are bound to be affected very badly. With this in mind, there might just be a $0.50 incremental in EPS. Before the Wuxi incident took place, Kipp Bedard has given an EPS guidance of $3.50. If this latest EPS estimate is added to that guidance, it works out to $4.00/share. All-in-all, this seems like a great deal.
In Tuesday’s trading, Micron Technology, Inc (NASDAQ:MU) stock rose 2.43%. The opening price of the shares was $16.47 which climbed to an intraday high of $16.86 and closed at $16.84.