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Micron's estimates may come down at Merrill

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Shares of Micron Technology (NYSE:MU) $21.49 -2.97% are trading lower today after Merrill's Jo Osha said he's getting confirmation of DRAM contract prices dropping into the high $2 range, down sharply from $3. This has Mr. Osha "threatening" to cut his earning's estimates if these price declines persist for another month. On May 10th, Merrill cut Micron's (MU) May quarter EPS estimates to $0.21 from $0.32 a share and August FY02 estimates to $-0.13 from $+0.21 a share, while reiterating its "near-term strong buy rating" at $22.47.

We will note here that Merrill Lynch made similar "timing" calls on Intel (NASDAQ:INTC) in prior months, making positive comments on Intel months before the company's mid-quarter update (May 6th), only to then trim estimates on Intel (INTC) on May 28th, and then "pull the plug" on their bullish near-term call on Intel (INTC) just prior to the company's recent mid-quarter update on June 6th.

Despite Mr. Osha's "threats" to cut estimates, it should be noted that his current quarterly estimates of $0.32 a share, are well above consensus estimates of $0.08 a share, and has some wondering (me included) what near-term impact today's comments from Mr. Osha will have should his estimates come down. This perhaps hints that Mr. Osha's call today is perhaps a "little late" as it relates to other analysts views of the stock. Micron Technology (MU) is expected to release earnings after the close of trading on June 24th.

Micron Technology Chart - Daily Interval

While Mr. Osha's estimates appear high compared to consensus, should he cut his estimates based on continued weakening in DRAM prices, that would then have the consensus estimate falling from current levels. With sector sentiment somewhat soured by Intel's (INTC) recent mid-quarter update, shares of Micron (MU) could decline back to their September lows should Mr. Osha bring his estimates "in-line" with the street.

Jeff Bailey
Senior Market Technician
Option Investor

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