NEW YORK ( TheStreet) -- Micron Technology ( MU) shares took a hit Wednesday after Goldman Sachs dropped the bullish stance it took on the chip maker's stock back in June.

The firm downgraded the stock to neutral from buy and cut its 6-month price target by 35% to $7.85 from $12, saying it anticipates Micron will see weakness in its main DRAM business because of booming demand for tablet computers, which typically have less memory than notebooks or netbooks.

" W e underestimated the impact tablets would have on the PC supply chain, with tablets cannibalizing notebooks faster and to a greater degree than we had expected," Goldman said in a note to clients, adding later that it now expects to see DRAM excess capacity "beginning to materialize in 4Q10 versus our prior expectation that DRAM shortages would persist through year end."

In its most recent 10-Q, Micron said DRAM dynamic random access memory products accounted for 50% of its total sales in its fiscal third quarter ended in May, while NAND, or flash memory, products accounted for 28%.

Shares of Micron fell 4% to $6.98 in recent trades with volume of 50 million far exceeding the issue's trailing three-month daily average of 33 million. Year-to-date, the stock is down more than 30%, compared to a roughly 11% decline for the PHLX Semiconductor Sector index, commonly known as the SOX.

In its downgrade, Goldman also said expected cost reductions that were part of the underpinning for its addition of Micron to its buy list in June were derailed by a delay in the transition issues affecting the company's Inotera joint venture. As part of the call, the firm lowered its estimate for Micron's fiscal 2010 earnings to 41.42 a share from $1.48 a share. Micron's fiscal year ended in August.

The current average view of analysts polled by Thomson Reuters is for a profit of $1.92 a share for Micron for the 12 months ended in August. So far, the company has topped Wall Street's expectations for the first three quarter of its fiscal 2010, most recently reporting third-quarter earnings of 92 cents a share that more than doubled the consensus view of 43 cents.

Goldman added that it believes other names in the chip sector look more attractive at this time.

"While we continue to believe that Micron's margins should improve in the 1HFY11 the first half of fiscal 2011 , we expect DRAM fundamentals to be less favorable beginning in 4Q10, making it difficult for the stock to outperform peers," the firm said. "As a result, we see better relative upside in other names in the Semi group and would put new money to work in TXN Texas Instruments ( TXN) , BRCM Broadcom ( BRCM) and NXPI NXP Semiconductors ( NXPI) ."

In the same note, Goldman also downgraded Maxim ( MXIM) to sell from neutral and cut its 6-month price target on the stock to $16 from $19, mainly because of valuation.

Shares of Maxim, however, took the call in stride, trading down 6 cents to $16.78 just prior to the closing bell on lighter than normal volume.

Shares of Texas Instruments and Broadcom were both off slightly ahead of the session's close, while NXP's stock was up 4% to $12.75 in late trades.

-- Written by Michael Baron in New York.

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