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Apr 16, 2012

http://hypoventurecapital-headlines.com/2012/03/hypo-venture-capital-headlinesstocks-commodities-euro-drop-on-economy-as-treasuries-advance/


March 22 (Bloomberg) — Stocks and commodities dropped while Treasuries rose for a third day after manufacturing contracted in Europe and China and FedEx Corp. predicted slower growth, undermining confidence in the global economy.

The Standard & Poor’s 500 Index slipped 0.7 percent to 1,392.84 at 10:39 a.m. in New York and the Stoxx Europe 600 Index fell for a fourth straight day, tumbling 1.2 percent. The euro depreciated 0.4 percent to $1.3162. Ten-year Treasury yields declined four basis points to 2.26 percent, and the rate on the German bund decreased seven basis points to 1.91 percent. Copper and oil plunged more than 2 percent and nickel retreated to the lowest price this year.

A gauge of European manufacturing fell to 47.7 as factory output unexpectedly shrank in Germany and France, according to London-based Markit Economics. A preliminary measure of Chinese manufacturing slipped to 48.1 in March, the lowest level in four months, based on figures from HSBC Holdings Plc and Markit Economics. FedEx, operator of the world’s largest cargo airline, predicted “below-trend” growth in coming quarters.

“I am not confident on the macro outlook,” said Filippo Garbarino, Chiasso, Switzerland-based manager of the Frontwave Capital Ltd. fund. “Every small macro disappointment is an excuse to realize capital gains and become more defensive. My net exposure to Europe at the moment is zero.”

Three-Day Drop

The S&P 500 retreated for a third day as concern about global growth overshadowed a drop in jobless claims to a four- year low and better-than-forecast growth in an index of leading economic indicators. Initial applications for unemployment benefits decreased by 5,000 to 348,000 in the week ended March 17, the fewest since February 2008, Labor Department figures showed today. The median forecast of 46 economists in a Bloomberg News survey projected 350,000.

Energy, commodity and industrial companies led losses among all 10 groups in the S&P 500 today, dropping more than 1.3 percent. FedEx tumbled 3.8 percent for its biggest drop of the year. Chevron Corp., Caterpillar Inc. and Hewlett-Packard Co. slid at least 1.9 percent for the biggest declines in the Dow Jones Industrial Average.

The Conference Board’s gauge of the outlook for the next three to six months increased 0.7 percent after a revised 0.2 percent gain in January that was less than initially reported, the New York-based group said today. The median forecast of economists surveyed by Bloomberg News called for a 0.6 percent rise.

The Stoxx 600 declined to the lowest level since March 13 as mining and construction companies led losses. Randgold Resources Ltd., which operates three mines in Mali, plunged 8 percent as an army officer said the West African country’s government has been overthrown. Baloise Holding AG sank 6.3 percent as Switzerland’s third-largest insurer said profit dropped 86 percent last year.

Yields Retreat

Yields on 10-year and 30-year Treasuries retreated for a third straight day after reaching the highest levels in more than four months on March 19. The 30-year bond rate decreased two basis points to 3.37 percent.

The euro fell for a third day versus the dollar. The yen gained against all 16 of its major peers, advancing 1.1 percent versus the euro and 1.5 percent against Australia’s currency. Japan’s exports unexpectedly exceeded imports by 32.9 billion yen ($395 million) in February, the government said. The Dollar Index rose 0.3 percent.

The S&P GSCI gauge of commodities declined 1.4 percent as silver, natural gas and oil fell more than 2 percent to lead declines in 19 of 24 raw materials.

The MSCI Emerging Markets Index fell 0.7 percent, heading for its sixth straight decline. The Micex Index slid 1.5 percent in Moscow and the FTSE/JSE Africa All Shares Index retreated 0.8 percent in Johannesburg. The BSE India Sensitive Index fell 2.3 percent. The Hang Seng China Enterprises Index lost less than 0.1 percent, its seventh straight loss and its longest losing streak since June.

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Posted: Apr 16, 2012 6:08pm
Mar 22, 2012

http://www.bloomberg.com/news/2012-02-28/micron-biggest-winner-as-elpida-bankruptcy-sidelines-rival-tech.html

Micron Technology Inc. (MU) will probably emerge as the top winner from the bankruptcy ofElpida Memory Inc. (6665), whose filing yesterday sidelines the last Japanese maker of computer memory chips and gives rivals the chance to scoop up factories on the cheap.

Elpida filed for Japan’s biggest bankruptcy in two years after chip prices plunged and it failed to win a second government bailout. The elimination of a top maker of dynamic random access memory would give the rest of the industry more control over production, helping to ease the price swings that have left Micron unprofitable for six of the past 10 years.

The headquarters building of Micron Technology Inc. in Boise, Idaho. Micron shares jumped 7.7 percent yesterday amid speculation that the company, the fourth-largest DRAM maker, might seek to acquire some of Elpida’s plants. Photographer: Matthew Staver/Bloomberg

Elpida Memory Inc. memory chips are displayed in this arranged photograph in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Elpida’s creditors will look for ways to recoup losses through the sale of such assets as a plant in Hiroshima valued at $1 billion by Sanford C. Bernstein & Co. For potential buyers such as Micron, that price tag would be about a fifth of the cost of building a new equivalent facility. That would fit with Micron’s strategy of trying to buy up capacity cheaply, rather than making acquisitions that outstrip the company’s $1.9 billion in cash and compel it to take on debt.

“Micron is clearly the winner,” said Dan Berenbaum, a New York-based analyst at MKM Partners LP. “Now it’s a question of how much does Micron pay for the assets.”

Micron shares jumped 7.7 percent yesterday amid speculation that the company, the fourth-largest DRAM maker, might seek to acquire some of Elpida’s plants. Dan Francisco, a spokesman for Boise, Idaho-based Micron, declined to comment.

Elpida has facilities that are responsible for about 18 percent of DRAM industry output, making it the No. 3 supplier. A push to take the plants offline or use them for other kinds of chips would help ease oversupply and stem industrywide losses.

Falling Demand

The computer-memory industry has been grappling with a decline in demand, brought on by a global consumer shift to smartphones and tablet computers, which need less memory and typically use a different type of chip.

Elpida’s troubles were exacerbated by DRAM prices falling below the cost of production. Industry sales last year dropped 26 percent to $29.2 billion, according to an estimate by Gartner Inc. That followed a 72 percent surge in 2010.

The Japanese chipmaker was the product of a 1999 merger between the memory businesses of NEC Corp. and Hitachi Ltd., which exited the industry.

‘Ten-Foot Pole’

If Micron makes a bid for some DRAM facilities, Elpida’s creditors will get an offer that’s “tough to swallow,” because the U.S. company knows it’s not likely to face any competition, said Hans Mosesmann, an analyst at Raymond James & Associates Inc.

“Nobody else is going to touch DRAM with a ten-foot pole,” said Mosesmann, who has a “strong buy” rating on Micron shares. “Micron is very practical. They don’t want all of Elpida.”

Earlier this month, Micron’s management told Mosesmann and other analysts the company is monitoring events in Japan to see if there are opportunities. Executives declined to comment on whether Elpida is one of them and what the company might do.

“It just doesn’t feel like there’s going to be any fresh capital put into the DRAM business,” Micron President Mark Adams said in an interview on Feb. 9. “If we’re right, then the industry is mature enough that consolidation could make a lot of sense.”

Elpida has total debt of about $4 billion and has reported five straight quarters of losses. Micron, which has been making acquisitions and driving industry consolidation for more than 10 years, has about $1.95 billion of debt, approximately equal to its cash reserves. The company has a target range for its debt- to-capital ratio of 20 percent to 25 percent. Its current cash plus market capital of $8.4 billion give it a debt-to-capital ratio of about 18 percent, according to data compiled by Bloomberg.

Debt Guidelines

If Micron stays within those guidelines -- giving it the latitude to borrow about another $500 million -- it’s not going to have enough leeway to buy its Japanese rival, said Daniel Amir, a San Francisco-based analyst at Lazard Capital Markets LLC.

“They probably won’t just buy out Elpida,” Amir said. “They are not willing to break the bank. It’s not like they’re going to spend $2 billion.”

Samsung Electronics Co., which dominates the memory-chip business and is the only consistently profitable company in the industry, has said it will concentrate on running its own business, making it an unlikely bidder for Elpida’s assets.

“Samsung is not going to come to their rescue,” said Raymond James’s Mosesmann.

Profit Struggle

Excluding Samsung -- which is also the world’s second- largest maker of mobile phones and the biggest maker of liquid crystal displays -- DRAM makers have struggled to make money.

Matching supply with demand poses a constant challenge in the market for DRAM for personal computers, where plants take years to come online and can’t be shut down cheaply. With factories costing billions of dollars to build, companies such as Elpida have found themselves facing debts they have trouble repaying.

In six of the past 10 years, industry companies have spent more cash than their operations have generated. Even including Samsung, whose share price has more than tripled, memory makers as a group have lost 40 percent of their market value since October 2002.

If output from Elpida’s plants is slowed down or halted, all of its rivals will benefit as supply gets closer to demand and prices stabilize, according to Shawn Webster, an analyst at Macquarie Capital USA Inc.

“Any time a competitor is in distress, it’s a positive for everybody else,” said Webster. “If you pull supply offline, that could help everybody in the DRAM industry.”

Micron CEO

Earlier this month, Micron lost longtime Chief Executive Officer Steve Appleton, who died in a plane crash. Mosesmann and other analysts speculated that his death might slow any possible negotiations for industry consolidation, because Appleton had been the driving force behind previous transactions.

Micron, which got its start with an investment from local potato magnate J.R. Simplot, became one of the largest makers of computer memory when it bought the memory operations of Texas Instruments Inc. in 1998. Since then, it has acquired plants from Toshiba Corp., bought control of a Japanese joint venture, and formed partnerships with Taiwan’s Nanya Technology Corp. and Intel Corp. to secure access to more production.

In 2008, as Germany’s Qimonda AG headed for bankruptcy and sought investments, Micron bought out its interest in Inotera Memories Inc. (3474) Qimonda subsequently went out of business, and its chipmaking equipment was sold off.

Micron has also walked away from opportunities. In April 2002, it abandoned a transaction under which it would have acquired the memory operations of South Korea’s Hynix Semiconductor Inc., the second-largest DRAM maker, after the companies couldn’t agree on terms.

‘In No Rush’

One way that Micron might consider a purchase of Elpida would be if it could get cheap financing for a transaction from Elpida’s creditors, which are facing the dilemma of knowing that restructuring the company’s debt wouldn’t be enough to make it competitive again, according to Betsy Van Hees, a San Francisco- based analyst at Wedbush Securities. Elpida needs more money to invest in making its production more efficient, she said.

When asked on Feb. 10 whether he would take Micron’s debt level above 25 percent of its capital to make an acquisition that would consolidate the industry, Chief Executive Officer Mark Durcan told analysts he was going to be “very careful about putting the company in a position where we’re not confident we can deal with any additional debt.”

Still, he would consider taking the debt ratio higher if there was a good enough opportunity, he said.

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Posted: Mar 22, 2012 6:59pm

 

 
 
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