Whoa Nellie! CSFB Says Micron Upswing Unwarranted

Over the past four trading sessions, Micron Technology (MU) has gone bananas, jumping 35% as investors rush back into technology. But Credit Suisse First Boston sees a lot of peels out on the roadway and advised its investors that the company's fundamentals do not warrant such gains.

Analyst Tim Mahon said he did not see any compelling data points to suggest that Micron should have gained close to $10 since last Wednesday. Quite the opposite, really. Mahon said recent data suggest Micron's inventory levels are still quite high, with products made in the first week of January only now making it into the marketplace. That suggests that Micron's inventory levels are at a range of about eight to nine weeks, not a good situation to be in.

Due to the high inventory levels and an increase in Japanese products in the marketplace, Mahon wrote that the company could be starting to dump products at the end of its fiscal year.

"In addition, we have seen evidence recently of original equipment manufacturers dumping excess product out the back door in their attempts to manage inventory levels," he wrote. "We believe this sort of action is very negative for the segment as it shows that customers believe they can buy product at a lower price in the future."

Indeed, Mahon said this phenomenon was one of the early warning signs of weakness back in August. Chip prices continue to slide, dropping 69% since October and 46% from December.

Credit Suisse First Boston reiterated its hold on Micron, telling investors that the lack of market demand and high inventory levels will continue to plague the company, especially since chip prices continue to slide. "Without a material and broad-based end-market pick up," the analyst wrote, "we believe it will be impossible for prices to stop declining, let alone start a sustainable rebound."

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