Wednesday, March 08, 2006

Hit #85

Lexar Media (LEXR) today got an all-stock takeover offer from Micron (MU). The offer values Lexar shares at around $8.35/share, a discount of 26.3% to my average cost of $11.34/share.

Lexar shares are trading at $8.85/share, indicating an expectation of a higher competing bid.

While the merger makes sense for both the players, I don't see much coming out it, given that prices and margins are falling fast. The only way is for them to move up the chain. Sandisk is a good example of a nimble/innovative player.

A smaller player, SimpleTech (STEC), is likely to be acquired soon. The stock looks attractive right now.

While there is no doubt that the new flash devices are a great step in the progress of personal storage, it is unlikely that the raw device makers will see any benefits. Companies like Sandisk that also build tiny mp3 players and other end-user devices may expect to profit, but even then margins will be slim.

Previous hit - iVillage (#84)


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