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Micron Technology Inc. (MU - Analyst Report) is scheduled to announce its fourth quarter fiscal 2012 results after markets close on September 27, 2012. In the run up to the earnings release, we notice some downward movements in estimates.

Third Quarter Overview

Micron delivered third quarter adjusted loss per share of 29 cents, wider than the Zacks Consensus Estimate of 19 cents loss per share. The dismal performance was due to lackluster average selling prices (ASP) per unit and higher operational costs.

The company’s reported revenue increased 1.5% year over year and 81% sequentially to $2.2 billion. After witnessing revenue decline for the past four quarters, the sequential improvement during the quarter was mostly attributable to higher DRAM shipments and favorable ASP.

Rising costs and a significant drop in NAND ASP resulted in gross margin decline. Micron recorded an operating loss due to higher operating costs.

Guidance

Micron did not provide any specific guidance for revenue or earnings. But the company expects NAND selling prices to decline modestly in the fourth quarter of 2012, while NAND bit growth is expected to increase in the high single-digit range. DRAM cost per bit is expected to increase slightly. Micron also expects NOR revenue to be relatively flat sequentially.

On the other hand, management is optimistic as PC demand is improving with better availability of hard drives and rise in corporate spending and expects demand to grow in the range of mid to high 20.0%.

Agreement of Analysts

The analysts expect that the emerging demand for ultrabook, smartphone and tablet will increase the demand for Micron’s NAND business. DRAM is also gaining popularity in both low-end and high-end smartphones. Increasing adoption of high end smartphones and tablets has consequently increased the demand for mobile DRAM.

They also expect that the expansion of NAND in Singapore will benefit flash market pricing from fiscal 2013 onwards. Also a potential boost in the PC market due to Microsoft Corp.’s (MSFT - Analyst Report) Windows 8 operating system, could ramp the demand for DRAM. Analysts expect SSD demand to rise in the coming quarters, which will eventually contribute to Micron’s success.

But the key concern of the analysts remains the pricing of the DRAM and NAND chips and their respective end market demand. A lackluster PC market will continually pressurize Micron’s fundamentals.

Out of the 25 and 21 estimates for the fourth quarter and fiscal 2012, respectively, 1 estimate each was moved downward in the last 30 days.

Magnitude of Estimate Revisions

The Zacks Consensus Estimate for the fourth quarter and fiscal 2012 remained unchanged at 21 cents loss per share and $1.01 loss per share, respectively over the past 30 days. However, the estimate for the fourth quarter of fiscal 2012 dropped 19.0% (2 cents) in the past 90 days.

Recommendation

We believe that pricing would act as a deciding factor for Micron’s fourth quarter. Also, lackluster demand for desktop PCs will remain an overhang over the DRAM fundamentals.

However, we remain encouraged by Micron’s pending Elpida buyout (a bankrupt Japanese chipmaker) that could bring in a larger DRAM market share. Also, Apple Inc.’s (AAPL - Analyst Report) reliance on Elpida would be a win-win situation for Micron, going forward.

On the other hand, we believe that it won’t be easy for Micron to capture share from SanDisk Corp. (SNDK - Analyst Report), a key player in the NAND zone.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold rating.

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