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Analyst comments, outlook lift Micron shares

Micron Technology shares hustled up 17 3/8, or 15 percent, to 136 5/8 Wednesday as several analysts came to the chipmaker's defense after it missed analysts' estimates by a 16 cents a share in its second quarter.

On Tuesday, Micron posted a profit of $161 million, or 58 cents a share, on sales of $1.4 billion.

First Call consensus expected it to earn 74 cents a share in the quarter.

Despite the earnings miss, Micron (NYSE: MU) told analysts that it expects a strong rebound in its third quarter.

Micron Technology (NYSE: MU) fell short of analysts' second quarter estimates, but said it sees a strong rebound in the current quarter.

On Wednesday, Warburg Dillon Read and Deutsche Banc Alex. Brown raised their 12-month price targets to $160 and $210 a share, respectively.

Morgan Stanley Dean Witter reiterated its $140 target.

All three brokerage firms said the earnings miss was a result of lower profit margins in its DRAM business and that the company's fundamentals were firming as it heads into the stronger half of the year.

First Call consensus expects Micron to earn 67 cents a share in its third quarter.

Company executives on a Tuesday afternoon conference call blamed the profit shortfall on a steep decline in DRAM demand because of corporate worries about Y2K problems and the wait for Windows 2000.

"Fiscal Q2 was a challenging one for Micron from the standpoint of managing demand from our customers," said Michael Sadler, vice-president of sales. "For the most part, these issues are now behind us."

Micron saw a sharp increase in demand near the end of the second quarter. Forty percent of the quarter's total shipments came in the final weeks of the quarter, Sadler told analysts.

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. Contract prices for DRAMs currently run in the "low $5" range for 64 megabyte blocks, and about twice that for 128 meg, Sadler said.

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. Company executives noted that the first quarter saw a surge in DRAM prices.

Total chip sales slipped 14 percent from the first quarter to $1.2 billion.

PCs consume a slightly higher percentage of Micron's DRAM shipments compared to the overall industry, which produces between 60 and 65 percent of its chips for PCs, the company estimated. But non-PC business is growing "fairly dramatically", Sadler said. Micron also sees rapid growth for its flash memory business, though that segment remains a small percentage of the company's overall revenue.

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.

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.