The market for DRAM memory chips is hotter than anyone can remember in recent times.

But tell that to investors of

Micron Technology

(MU) - Get Report

, the Boise, Idaho, memory chipmaker that

missed revenue expectations for the second quarter in a row on Thursday.

Investors were panicked by the disconnect, and pushed Micron's stock down 13% in recent trading Friday. More than 43 million shares of the stock changed hands, compared with average volume of 9 million shares.

"The time for MU to be blowing away numbers is right now, and if it cannot do it with the market 'red hot,' then when?" wrote American Technology Research analyst Doug Freedman in a note to investors downgrading Micron from buy to sell.

Micron has been diversifying its operations by expanding into more profitable image sensors, NAND flash and specialty DRAM, to lessen the company's exposure to the volatile commodity DRAM market. The problem is, the diversification is causing Micron to miss out on the up cycle for commodity DRAM.

Micron's management acknowledged that prices of DDR2 DRAM chips have surged as much as 20% since the summer. Yet Micron's memory product gross margins did not see a commensurate lift. Excluding the one-time legal charges that dented its margins, Micron said memory gross margins would have been sequentially higher in the fourth quarter -- not exactly the level of benefit one would expect given the roaring DRAM market.

Meanwhile, the company is undertaking a massive capital expenditure project in line with its diversification efforts, ramping up a pair of U.S. chip fabrication facilities for flash memory, and converting its 200mm DRAM fab in Singapore to 300mm production.

According to American Technology Research's Freedman, this build-out carries too many risks and uncertainties to stick with the stock.

"The company in their history has never ramped three fabs in one time," says Freedman.

"If those ramps push out, or get delayed further, then you'll have revenue expectations that are missed. The risks are too great not to discount them," Freedman adds.

Of course, having

Intel

(INTC) - Get Report

as a partner in the flash project should assuage some of those fears.

And the benefits of diversifying away from the PC DRAM market is the right move in the long run, says Jefferies analyst John Lau, who reiterated his buy rating on Micron. The company should see margin expansion in the next 12 to 18 months, Lau says, as it increases its output of NAND flash and continues to benefit from strong sales of high-margin image sensors for cell-phone cameras.

Shares of Micron were down 13%, or $2.28, at $15.26 in recent trading.