Micron's

(MU) - Get Report

profit outlook got another haircut this morning, this time on worries the chipmaker will be hurt by weakening prices for DRAM.

The stock was down 1.8% to $21.07 in early afternoon trading. It's off 53% from the high of $44.99 it reached Aug. 2.

Today Banc of America analyst Douglas Lee cut earnings estimates for Micron's fiscal year 2002, ending in August, to a loss of 38 cents from a loss of 7 cents, while trimming estimates for 2003 to $1 from $1.36.

Both those forecasts are well below consensus estimates. Analysts expect Micron to post a loss of 29 cents in 2002 and a profit of $1.76 in 2003, according to Thomson Financial/First Call.

However, Lee said he expects Micron to meet consensus earnings estimates of 6 cents for the quarter ending in May. The company is scheduled to report earnings in the last week of June.

In a research note, Lee said sales at major Taiwanese DRAM vendors were getting worse by the month. For example, Nanya Technology's May sales contracted 33%, following a 12% decline in April and 1% growth in March. "We believe this downward trend is likely across all DRAM manufacturers globally," he wrote.

In the last couple of months, DRAM prices have dropped roughly 50% amid a surge in supply and continued weak demand for the PCs that use the chips. Average DRAM contract prices have dropped from $5 in March to current levels of around $2.50 or $3, while spot prices have dropped from around $4 to $2.

Though spot prices appear to have bottomed in the short term, Lee said contract prices could fall still further.

Earlier in the year, when DRAM prices were higher, Micron and other DRAM manufacturers had begun ramping up production of the chips. In its March conference call, Micron said it expected to grow its DRAM bit production in the high teens for the current quarter. Nanya aims to produce 75 million 128Mb-equivalent DRAMs in the third quarter, up from 57 million in the second quarter. Manufacturers in Korea are also believed to be boosting production by about 20% in the third quarter.

While production has been on the upswing, Micron's takeover bid of Korean chipmaker

Hynix

, which would have shut down some capacity and reduced supply, has stalled out. Analysts had hoped such a move would have put a floor under prices.

But last Sunday, a leading South Korean politician said Hynix wouldn't be sold until at least the end of this year, and that it may be allowed to remain independent if DRAM prices recover to the $5 to $6 range, according to a report from Reuters.

On May 31, Micron's earnings projections were also cut by analysts at Lehman Brothers and Morgan Stanley, who cited concerns about lackluster chip demand and rising inventories of DRAM.