Investors wary of PC sales after Micron results
* Micron memory outlook spooks chip investors
* Quarterly results amplify consumer PC worries
* Analysts still recommend Micron
By Noel Randewich
SAN FRANCISCO, June 24 (Reuters) - Wall Street's concerns about already-tepid sales of personal computers intensified after chipmaker Micron Technology Inc (MU.O) posted disappointing results and warned about slow sales of DRAM memory.
Micron executives' comments late on Thursday about limited visibility of consumer PC demand and higher-than-ideal inventories of DRAM chips sparked a Friday sell-off in stocks linked to personal computers.
Investors bet that weak laptop sales would be reflected in companies like Intel Corp (INTC.O), Nvidia Corp (NVDA.O) and Dell Inc (DELL.O) when they report their earnings for the June quarter.
"You're seeing a bit more caution on the PC side, which is a big portion of semis," said Sterne Agee analyst Vijay Rakesh. "What they're saying is they're seeing some demand weakness."
The pace of growth in PC sales has slowed in recent quarters, as many consumers struggle with a tough economy and others choose tablets like Apple Inc's (AAPL.O) iPad instead of buying new laptops.
The memory chip industry, where Micron, Samsung Electronics Co Ltd (005930.KS), Elpida Memory Inc 6665.T and Hynix Semiconductor Inc (000660.KS) compete, is often thrown out of balance by adding manufacturing capacity faster than customers can absorb it.
But the industry has not added a lot of new factories recently, and the current problem lies more with slow computer sales, said Gleacher & Co analyst Doug Freedman.
"Demand growth is not keeping up with bit growth caused by node advances, and that's a bad thing," Freedman said. "In this cycle, I think it's truly a demand-side cycle -- and that's what's worrying the market."
Micron chief executive Steve Appleton told investors on a conference call that some customers' stockpiles of DRAM chips used in personal computers were at about five weeks, which is a little higher than normal.
"Visibility of notebook builds remains poor. As a result, we continue to expect chip stocks to remain under pressure through the upcoming earnings season," Citi analyst Glen Yeung said in a note to clients.
Also weighing on tech shares, Oracle Corp (ORCL.O) posted disappointing quarterly results late on Thursday, particularly in hardware sales, sparking concerns about a sharper-than-expected slowdown in technology spending. Its shares fell 3.79 percent.
Intel, which makes the processors that power 80 percent of the world's PCs, has looked to China and other emerging markets to drive growth amid lackluster demand in the United States and Europe.
Santa Clara, California-based Intel recently maintained its forecast for the second quarter after market research firms, heavily relied upon by investors, cut their predictions of worldwide PC sales growth.
Intel has criticized market researchers for failing to adequately take emerging markets into account in their PC sales forecasts. But analysts also warn that computers sold to low-income consumers in those countries are often made with less-expensive parts that are less profitable to chipmakers.
This month, Gartner cut its outlook for worldwide PC unit sales growth to 9.3 percent, down from a previous forecast of 10.5 percent. The same week, IDC trimmed its forecast for PC shipment growth to 4.2 percent, down from 7.1 percent.
Ahead of Micron's earnings, most analysts had recommended buying the company's stock, saying it was cheap following a recent steep sell-off.
On Friday, Micron fell 13.4 percent to $7.30 and many analysts doubled down, trimming their earnings estimates but continuing to recommend the company, which remains profitable but is now trading at less than book value.
Shares of Intel fell 1.5 percent, graphics chipmaker Nvidia was down 2.7 percent and Dell declined 1.7 percent.
Underscoring the growing popularity of Apple's iPad and smartphones, Micron said inventories of NAND chips used in them were tight, although revenue from them declined in the quarter due to a drop in prices.
Micron said revenue from DRAM chips was 7 percent lower in the fiscal third quarter compared with the previous quarter, as lower sales volume offset marginally higher prices.
A lack of new manufacturing capacity following the recent downturn has helped stabilize plunging DRAM prices, somewhat improving the outlook for industry. (Reporting by Noel Randewich, editing by Gerald E. McCormick)
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