Micron Stock Pounded on Outlook

Worries about future demand for memory chips pounded Micron Technology shares in Tuesday morning trading.


The pummeling came despite a seemingly positive earnings report from the company Monday. Micron beat quarterly margin and revenue expectations as prices for its memory chips jumped 9 percent, after corporations worldwide splashed out once again on tech gear.

Shares of Micron, which competes with industry leader Samsung , Elpida and Hynix Semiconductor, were down over 12 percent early Tuesday.

Earlier Monday, the stock had rocketed 6 percent higher in regular trading on expectations of a strong quarterly result.

The top U.S. maker of memory chips for computers posted its third straight quarterly profit after nearly three years in the red, when the memory chip industry struggled through its worst-ever downturn.

But analysts saw danger in the company's outlook. Micron officials on an analysts conference call said the company expected dynamic random access memory (DRAM) bit growth for the fourth quarter to be flat to up slightly quarter over quarter.

Gary Hsueh, analyst with Oppenheimer and Co, said he would have expected double digit growth for DRAM and that he was concerned the company is guiding lower than that.

"They didn't really say a hell of a lot to kind of hang your hat on if you're a long term investor,'' Hsueh said.

Analysts warn prices for DRAM, which go mainly into computers and servers, may have leveled off after gaining strongly in early 2010.

But Micron should be able to keep a lid on costs, shoring up margins, analysts said after the Monday report.

Alex Gauna, analyst with JMP Securities, said investors may not have taken into account the higher margins Micron expects to realize on DRAM, which may be driving down the stock price.

And he added third-quarter results could contribute to the share price decline.

"There might be disappointment that the beat wasn't larger than it was,'' he said.

Micron said net profit came to $939 million, or 92 cents per share in the quarter ended June 3, compared with a net loss of $301 million, or 37 cents per share, a year earlier.

The company was upbeat about its results. Mark Durcan, president and CEO of Micron, told Reuters demand is high for the company's products.

``The computing segment, the handset segment, the network segment, consumer you name it, we're having trouble filling demand in every segment,'' he said.

The Boise, Idaho-based company is starting to see some uptick from resurgent corporate spending on computer technology, as budgets loosen after years of belt-tightening.

Gross margins on core memory products jumped to 40 percent in the quarter from 35 percent in the previous three months, versus the average analysts' forecast of 34.3 percent.

Revenue was $2.29 billion, again surpassing the mean forecast of $2.12 billion.

The company posted a 9 percent rise in average selling prices for DRAM memory products and a slight increase in unit sales.

The company said it expects sales from its recent Numonyx acquisition to generate $475 million to $500 million in revenue in the fourth-quarter.