Micron Technology fell woefully short of analysts' estimates Tuesday, earning $161 million, or 58 cents a share, on sales of $1.4 billion. Average selling prices fell 20 percent in the quarter and the fat profit margins it enjoyed last quarter dried up.
First Call consensus expected the chipmaker to earn 74 cents a share in the quarter.
Ahead of the earnings report, Micron (NYSE: MU) shares fell 4 1/8 to 131 1/2. In after-hours trading, the stock was at 127 and sliding.
After enjoying profit margins of 51 percent last quarter, Micron had to settle for 37 percent this time around.
Average selling prices fell 20 percent from the first quarter when it earned $341 million, or $1.19 a share, on sales of $1.6 billion.
Company officials said gross profit margins for semiconductor operations checked in at 41 percent, down from 58 percent in the first quarter.
In the year-ago quarter, Micron made $22.4 million, or 8 cents a share, on sales of $1 billion.
Those huge profit margins that resulted in the upside surprise last quarter were nowhere to be found this time around.
Total chip sales slipped 14 percent from the first quarter to $1.2 billion. Unit shipments of PC systems fell 17 percent from the first quarter as a result of a 19 percent decline in desktop unit shipments to government customers.
Analysts expected Micron's DRAM sales to slip a bit this quarter but not this far.
Joseph Osha, an analyst at Merrill Lynch, predicted earlier this quarter that Micron would earn between 75 cents to 80 cents a share this quarter on sales of around $1.27 billion.
At the time, Osha said DRAM prices had already softened from "unreasonably high" levels in September and October.
"We encourage investors not to engage in buying and selling Micron based on the volatile DRAM spot market," Osha said in a research note. "Investors who buy the stock now in anticipation of tightening supply during the next 12 months should be rewarded handsomely."
Donaldson Lufkin & Jenrette started coverage of Micron shares with a "buy" recommendation Tuesday morning.
If and when the DRAM supply tightens later this year, Micron could see a return to the profit margins it enjoyed last quarter.
First Call consensus expects it to earn $3.67 a share in the fiscal year.
Fifteen of the 22 analysts covering the stock maintain either a "buy" or "strong buy" recommendation.
The stock peaked at 139 3/4 earlier this month after falling to a low of 34 1/4 in April.