Stock Market Predictions

Chipmaker Micron hit by weak PC sales, stock slumps

Stock Market Predictions

Boise, Idaho-based Micron's stock had already slumped 25 percent since the end of April due to worries about lackluster PC sales and potential steep losses in an antitrust trial against Rambus (RMBS.O).

Micron's poor results on Thursday pushed its shares down 12.9 percent in after-hours trading and compounded negative sentiment in the tech sector after Oracle (ORCL.O) also posted quarterly profit that disappointed investors.

"We've all seen a softening of the desktop and notebook PC climate, partially offset by some growth around tablets," Mark Adams, Micron's vice president of worldwide sales, told analysts on a conference call. "At this point, it's hard for us to call too much further out in the future."

Micron Chief Executive Steve Appleton said inventories of DRAM chips used in personal computers were a bit higher than normal but that inventories of NAND chips -- used in tablets -- were tight.

Sales of PCs have grown at a slower pace than expected in recent quarters as some consumers worried about a tough economy hold off on large purchases and others choose Apple's (AAPL.O) iPad and other tablets over laptops.

This month, two prominent market research firms cut their forecasts for 2011 PC sales although PC chip giant Intel (INTC.O) said it was standing by its previous guidance for the quarter ending in June.

SHOCKING

Intel says developing countries like China are driving PC growth, but computers sold there often include fewer DRAM chips than models in the United States and Europe.

"Revenue is a bit shocking," said Avian Securities analyst Win Cramer of Micron's results. "Emerging market PC growth is good but they're not DRAM dependent."

Micron said revenue from DRAM chips was 7 percent lower in the third quarter compared to the previous quarter due to lower sales volume, a bad sign for competitors like Japan's Elpida (6665.T) and South Korea's Hynix (000660.KS).

Revenue from Micron's NAND chips, used in tablets, phones and other mobile devices, declined 5 percent, with prices down 5 percent.

"This market is jittery, worried about demand and macroeconomics," Stifel Nicolaus analyst Kevin Cassidy said of the after hours sell-off of Micron's stock.

He said that with Micron now trading below book value, he would continue to recommend the shares.

NAND and DRAM chips have long been commodities whose prices depend on supply and demand.

To reduce its exposure to market volatility, Micron is increasing its sales of specialty and high-end memory chips that go into solid-state drives and network equipment.

But as Micron's rivals also move into those niches, they in turn risk becoming commodities as well.

ANTITRUST UNCERTAINTY

Adding to uncertainty in the memory chip industry, a trial got underway on Monday in which Sunnyvale, California-based Rambus accuses Micron and Hynix of restricting the availability of memory chips using its technology starting in the 1990s in favor of chips with their own technology.

Rambus claims up to $4.38 billion but analysts say Micron's stock may have been punished too much since larger memory chipmaker Samsung (005930.KS) settled antitrust claims with Rambus last year for no more than $900 million.

Micron posted fiscal third-quarter revenue of $$2.139 billion, down from $2.288 billion in the year-ago period. Analysts on average expected revenue of $2.364 billion, according to Thomson Global Markets I/B/E/S.

Micron said its net profit was $75 million, or 7 cents a share in its fiscal third quarter, compared with $939 million, or 92 cents a share, a year earlier.

Shares of Micron were down to $7.34 in post-session trading after closing up 3.18 percent at $8.43 on Nasdaq.

(Reporting by Noel Randewich, editing by Bernard Orr)