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TheStreet Open House

Micron Tripped Up by Estimate Cut

NEW YORK ( TheStreet) --- Shares of Micron Technology (MU) were floundering on heavy volume again as Wall Street continued to sound the alarm on memory pricing.

Auriga USA got in the act on Friday, "hacking" earnings estimates on the semiconductor manufacturer and lowering its price target on the stock to $11 from $13.

"Memory fundamentals have slipped more rapidly than we had anticipated due to weak PC and consumer electronics demand," the firm told clients, adding later: "It now seems highly likely that MU's gross margin will dip over the next several quarters as DRAM and NAND pricing continues to weaken."

The call follows a similar move by Goldman Sachs, which removed the stock from its buy list earlier in the week, citing the impact of tablet computers cannibalizing the sales of laptops and netbooks.

Micron shares were down 4.5% to $6.78 in late trades. Volume of 46.4 million compared to the stock's usual churn of 33 million and was good for fifth most active issue on the Nasdaq exchange. The shares are off more than 30% year-to-date and have broken below both 50-day and 200-day moving averages of $7.17 and $8.94 respectively, a bearish sign.

Auriga made a nominal cut to its pro forma earnings estimate for fiscal 2010, going to $1.39 a share from $1.42, saving the big axe for its fiscal 2011 and 2012 views. It now sees pro forma earnings of just 48 cents a share in fiscal 2011 and $1.12 a share in fiscal 2012, compared to prior views of $1.82 and $1.74 a share respectively.

The current average estimates of analysts polled by Thomson Reuters are for Micron to earn $1.96 a share in fiscal 2010, $1.68 a share in fiscal 2011, and $1.37 a share in fiscal 2012.

Auriga kept its buy rating on Micron however, saying it doesn't believe the drop in pricing for DRAM products, which account for roughly half of Micron's revenue, will be as drastic as it was the last time the industry faced oversupply in 2008.

"Our bottom-up model suggests that DRAM is exiting a period of constrained supply, and seasonal patterns will probably keep DRAM soft through H111 the first half of fiscal 2011 ," the firm said. "However, the magnitude of oversupply will likely be much lower than it was in H208/H109 the second half of 2008-first half of 2009 ."

Auriga cited Micron's cash generation as a major positive, estimating the company will still have free cash flow of around $2 billion over the next two years, despite plans to increase capital spending.

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