Analysts: Micron Technology Inc. Takes 'Calculated Risk' With Inventory Build

Micron Technology Inc. MU analysts expressed caution Thursday regarding the company's plan to build its inventory, rather than sell chips into a weak market for personal computers. The Boise, Idaho-based company changed hands recently at $27.26. Micron, which cut its third-quarter revenue substantially late Wednesday, obtained about 65 percent of its revenue in the recent quarter from DRAM memory chips used in PCs, versus about 68 percent in the preceding period. "It's a calculated risk" that prices will improve later in the year, Morgan Stanley's Joseph Moore said. "But it gives us less confidence" in the company's prospects. Moore, maintained an Equal Weight rating and $30 target, and said the company should consider cutting production, rather than building inventory. Wedbush's Betsy Van Hees called the inventory build "a red flag" and recommended that investors take profits. Van Heese cut her price target 11 percent to $31, but maintained an Outperform rating. But UBS Steven Chin called the expected build-up "a prudent move" in light of price declines. Back-to-school seasonality and a move in the personal computer industry toward premium products will result in growth for Micron in the fourth quarter, according to Chin, who maintained a Buy rating and $38 target. Given Intel Corp.'s INTC first-quarter revenue warning last month, Micron's lowered outlook had been expected by the market, according to JMP's Alex Gauna. Citing strength in Micron's non-PC related segments, "this is not the start of a cyclical downdraft," according to Gauna, who maintained an Outperform rating and $42 target. Likewise Credit Suisse John W. Pitzer maintained an Outperform rating and $50 target. While weakness in the market for PC chips is "a bit concerning," Pitzer said mobile chip demand is strong and he expects Micron will "start to return cash in the form of dividends and buy backs." Micron believes holding inventory is a better strategy than flooding the market, according to Deutsche Bank's Sidney Ho, who maintained a Buy rating but cut his price target 15 percent to $34.