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Micron Rebounds From Selloff as Wall St. Looks Beyond Earnings

Investors see strong growth prospects and a brighter outlook for the chip market.

Updated from 1:31 p.m. EST

Micron Technology

(MU) - Get Report

surged Wednesday, more than recovering from Tuesday's late selloff, as investors focused on the company's strong growth prospects.

Micron's stock climbed 20 3/16, or 16.9%, to close at 139 7/16. On Tuesday, Micron's shares dropped 14 3/8, or 11%, with most of that decline coming in after-hours trading after the Boise, Idaho-based developer of memory chips

reported earnings for its fiscal second-quarter that were 16 cents a share below Wall Street's expectations.

The company attributed the lower-than-expected earnings to a 20% drop in the price of its products throughout the quarter.

For the fiscal quarter ended March 2, the company reported net income of $161.3 million, or 58 cents a diluted share, compared with $22.4 million, or 8 cents a share, in the 1999 second quarter.

By Wednesday, investors no longer seemed concerned with the earnings shortfall. Money managers and analysts predicted that Micron's future looked bright as prices for memory chips seemed poised to rise because of falling supplies and growing demand.

"The direction this morning is correct," said Brian Gilmartin, portfolio manager at

Trinity Asset Management

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, who owns Micron. "The market is anticipating a shortage of chips based on the Windows 2000 launch. There's still strong demand for retail PCs. You're going to see a dearth of supply and stronger demand."

Sell-side analysts have also been bullish on the stock. Charles Boucher, an analyst at

Bear Stearns

, said he stood by his buy rating for Micron, which he issued Tuesday before the company released its financial results.

"What investors need to understand is that the sell-side community's job is to anticipate trends, not look in the rearview mirror," said Boucher, who anticipated earnings of 73 cents a share for the second quarter. Bear Stearns has done no underwriting for Micron.

The memory chip market slumped in Micron's second fiscal quarter after computer makers stocked up on memory chips on fears that there would be supply disruptions due to Y2K-related computer problems in Taiwan. Now, with inventories shrinking, spot prices for memory chips, which trade like a commodity, have rebounded to about $6 from a low of $4.50 reached during the second quarter.

"Micron's stock trades along with the spot price of 64 DRAM," said Erika Klauer, an analyst at

Deutsche Banc Alex. Brown

, referring to memory chips. "When it comes to Micron, people are concerned with the next three months and the spot price is set to continue moving upward."

Klauer rates Micron Technology a buy. Her firm has done no underwriting for Micron. For more on Micron, please check out this

link.