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Citi downgrades red-hot chip stock Micron due to falling flash memory prices

  • Citi Research is concerned lower flash memory pricing will hurt Micron's financial results later this year.
  • The firm's analyst says flash memory represents 31 percent of Micron's sales and 15 percent of its profit. He notes flash memory prices fell 12 percent in the company's most recent quarter after a 3 percent decline the previous quarter.
An employee checks a silicon wafer on the production line of Micron's plant in Asia.
Seokyong Lee | Bloomberg | Getty Images
An employee checks a silicon wafer on the production line of Micron's plant in Asia.

One Wall Street firm is getting worried about Micron shares after the stock's surge so far this year.

Micron reported better than expected fiscal second-quarter earnings Thursday and gave financial guidance for the next quarter above expectations.

But Citi Research is concerned lower flash memory pricing will hurt the chipmaker's financial results later this year. As a result the firm lowered its rating to neutral from buy for Micron shares.

"We have had some concern on Micron stock for a few months due to our fears of NAND [flash memory] rolling over. NAND pricing declined over 10% QoQ for the first time in two years and the upside to estimates is diminishing," analyst Christopher Danely wrote in a note to clients Friday. "We are lowering estimates and believe Consensus estimates could decline soon as well."

Micron shares declined 8 percent Friday. The company's stock was the best-performing chip name in the S&P 500 with a 43 percent gain year to date through Thursday.

Danely said flash memory represents 31 percent of Micron's sales and 15 percent of its profit. He noted flash memory prices fell 12 percent in the company's most recent quarter after a 3 percent decline the previous quarter.

The analyst raised his price target to $60 from $55 for Micron shares, representing 2 percent upside to Thursday's close.

"We are nervous" about the new price forecast, he wrote.

Micron did not immediately respond to a request for comment.