O2Micro stock drops following analyst downgrade

Shares of microchip supplier O2Micro International Ltd. skidded Friday after an analyst said the company will lose share in two key markets and downgraded the stock.

Needham analyst Vernon Essi Jr. lowered his rating to "Buy" from "Strong Buy" because he believes Microsemi Corp. and Rohm Co. will gain market share in liquid crystal display TVs at the expense of O2Micro. He added that O2Micro plans to cut back in the small notebook PC market, where sales are growing quickly.

With competition increasing, Essi Jr. said the company's profit margins will decline. He cut his 2008 profit estimate to 59 cents per share from 64, and his 2009 estimate to 70 cents per share from 87. He trimmed his price target to $11 per share from $15 as a result.

Shares lost 95 cents, or 12.9 percent, to $6.41 in afternoon trading, and fell as far as $6.27, their lowest price since October 2006. Shares were already trading around annual lows, down from a peak of $18 in October.

On average, Thomson Financial reports that analysts expect O2Micro to earn 53 cents per share this year _ with Essi Jr.'s estimate the highest among eight surveyed analysts _ and 75 cents per share in 2009.

O2Micro International did not immediately return calls seeking comment.