Monday, November 27, 2006

Calls of Note Part 3

- Merrill Lynch notes that Micron's (NYSE:MU) stock has been mired in the $14 - $15 range since the company's disappointing performance for the Aug-06 quarter, but the firm thinks the stock could move back to the $16 - $17 range in the near term. From a short-term trading standpoint, they think that the increase in memory pricing combined with Micron's underperformance relative to both the SOX and the Dow could drive a catch-up rally.

ML notes they have their doubts about Micron's ability to actually capitalize on the stronger DRAM environment, and that underpins firm's Neutral rating. Micron has struggled to take advantage of the strong operating environment in the DRAM business. The company's performance during the August 2006 quarter was disappointing, as gross margin backslid despite steady pricing. However, they do think that the pricing environment is likely to hold up, especially for leading-edge DDR2 products. Even if Micron ultimately doesn't benefit from the pricing strength, they think it's only a matter of time until the market notices that the only liquid U.S. DRAM play is lagging the market while DRAM pricing continues to firm and the introduction of Vista and its increased memory requirements draws closer.

Notablecalls: ML's Joe Osha has made an actionable call on MU here. I continue to expect MU to move up from current levels.

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