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The Zacks Analyst Blog Highlights: Micron Technology, Apple, SanDisk, Halliburton and Schlumberger

MU AAPL SNDK HAL SLB

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For Immediate Release

Chicago, IL – July 6, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Micron Technology Inc (MU - Analyst Report), Apple Inc. (AAPL - Analyst Report), SanDisk Corp. (SNDK - Analyst Report), Halliburton Company (HAL - Analyst Report) and Schlumberger Ltd. (SLB - Analyst Report).

 

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Here are highlights from Thursday’s Analyst Blog:

 

Micron Awaits Twin Acquisitions

 

Following Micron Technology Inc’s (MU - Analyst Report) bid for Japanese chip maker Elpida Memory, the trustees have recently announced that both companies signed a definitive sponsor agreement for the proposed takeover.

The Tokyo District Court acted as the adjudicator of the agreement, related to Elpida's corporate reorganization proceedings.

As per the terms of the agreement, Micron will  pay 200 billion Yen, as reduced by reorganization expenses, to Elpida’s secured and unsecured creditors to satisfy their reorganization claims. Besides the reorganization settlement, Micron will be required to pay 60 billion Yen for the acquisition, translating to approximately $750 million.

This apart, Micron will also have to shell out 140 billion Yen (or $1.75 billion) in future annual installments through 2019 for foundry services provided by Elpida to Micron as its subsidiary. The financial support would thus result in the discharge of Elpida’s debtors, while supporting its operations and employees.

In a separate development, Micron signed an agreement to acquire a Taiwanese company, Powerchip Technology Corporation, and some of its affiliates, which will ensure the procurement of Powerchip’s 24.0% stake in Rexchip Electronics Corporation for approximately 10 billion Taiwanese dollars, or $334 million.

Sluggish growth in personal computer stemming from chip gluts in recent years have been triggered by sales and improvements in productivity, mainly owing to massive capital investment. This has resulted in lowering of chip prices closer to production costs. This has put immense pressure on SK Hynix's margins and led to a loss at the company.

On the other hand, improvement in demand for mobile devices such as tablet PCs and smartphones will drive DRAM sales and would cover up some of the weak PC industry demand.

Though Micron’s prospects in the mobile DRAM market look promising, it will not be easy to outpace Samsung, which commands a leadership position in this market. Recently, another research firm, TrendForce, revealed that mobile DRAM production capacity is increasing.

This apart, after this acquisition, around 90.0% of the worldwide chip industry will be controlled by three firms -- Samsung Electronics, Micron and SK Hynix -- which may help to stabilize the price fluctuation in this market.

Moreover, Gartner affirms that decelerating supply and increasing demand will lead to an improved scenario beginning in the second half of 2012 and through 2013.

Micron’s third quarter results were disappointing as net loss per share was wider than the Zacks Consensus Estimate. However, we remain positive about Micron’s pending Elpida buyout, which could drive higher DRAM market share. Also, Apple Inc.’s (AAPL - Analyst Report) reliance on Elpida could be a big positive for Micron going forward.

Then again, we believe that it won’t be easy for Micron to capture share from SanDisk Corp. (SNDK - Analyst Report), a key player in the NAND segment. However, the renewal of operations in Thailand may help the company in this respect.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold rating.

 

 

Halliburton Cut to Underperform

 

Following Halliburton Company’s (HAL - Analyst Report) second quarter profit warning, we have downgraded the oilfield services behemoth to Underperform from Neutral.

Houston, Texas-based Halliburton is one of the largest oilfield service providers in the world, offering a variety of equipment, maintenance and engineering and construction services to the energy, industrial and government sectors. The company operates under two main segments: Completion and Production, and Drilling and Evaluation.

Halliburton recently cautioned investors that a higher-than-expected spike in the cost for guar gum – a key constituent of the company’s market-leading hydraulic fracturing ('fracking') procedure – will adversely impact its second quarter results.

Guar gum, a bean grown mostly in India, apart from being a dairy products thickener is also a main ingredient of the fracking process, which is used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals.

As per Halliburton, demand for guar gum has gone through the roof in North America following the growing use of fracking in the extraction of oil and natural gas liquids from shale. This has led to concerns about the commodity’s potential shortage later in 2012, thereby driving up guar gum prices more rapidly than previously expected.

The rising costs, according to the company, have affected its second quarter profitability in North America. The world's second-largest oilfield services firm after Schlumberger Ltd. (SLB - Analyst Report) now sees margins in the region to be down by 300 basis points more than the previous forecast of a 200–250 basis points squeeze, implying a 500–550 point drop from the first-quarter levels.

Additionally, the North American land rig count, which has experienced strong upward momentum over the last twelve months, may plateau in the near future as growth in highly-productive horizontal drilling has led to a natural gas supply overhang and relatively weak natural gas prices in the U.S. market. This is likely to be only partially offset by the continued growth of oil- and liquids-rich reservoirs. A slowdown in U.S. land drilling will adversely impact Halliburton’s business.

Lastly, we expect Halliburton shares to remain soft until it fully works its way through claims related to the Deepwater Horizon incident. We are also concerned by the slow and geographically uneven recovery in Halliburton’s international markets.

Given these concerns, we expect Halliburton to perform below its peers and industry levels in the coming months. As such, we see little reason for investors to own the stock.

 

 

 

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