Doug Freedman of American Technology Research raised his rating on Micron (MU) this morning to Buy from Neutral, and lifted his price target to $15.50 from $14. Micron will report earnings today after the close.

Freedman says his upgrade today is not a call on the quarter, which he expects to be lackluster. (The company reports after the close today.) Instead, he says investors who want to own PC-related stocks into the second half should consider taking a half-position ahead of the announcement as a play on sentiment that could drive a rally, and fill the position following the report, “hopefully benefitting from volatility.”

Freedman notes that contract prices in June flattened after 5-plus months of declines. He says DRAM channel inventory has improved, and that OEMs are “back in acquisition mode” for DRAM. Also, he says image sensor inventories “are more reasonable now” and that order backlog should drive the segment back to mid-to-high teens percentage of revenue in the second half.

As for NAND, he notes that prices have held steady in the second half of the second quarter, and that second half bit consumption will likely absorb all supply do to sharp ASP declines in the first half and the emergence of new applications.

“NAND is of growing importance to Micron as revenue growth is not matching bit growth due to dramatic ASP erosion thus far,” he writes. “We believe the company will turn the corner on NAND profitability in the back half of the year or early 2008 as it will better be able to absorb its fixed costs, and as start-up costs come down. We believe the NAND market will be stable to positive in [the second half] of the year with Apple (AAPL) products consuming a lot of supply and SSDs making it into high-end notebooks for the holiday season. In addition, we expect NAND densities to increase in the handset market driven by a design shift towards more functionality in handsets driven by iPhone copy cats.”

Freedman isn’t buying rumors that the company could be acquired by private equity investors. But he does think Micron would benefit from an alternative approach to its business, in which it would close down its 200mm equipment or perhaps operate as a foundry. “We believe the U.S. is in dire need of a major foundry player given the potential for political instability that could upset the Asian dependent semi space, which in total is now the size of ~3% of U.S. GDP.” He notes that foundries generate higher margins on their capacity than Micron does on its core businesses. He also says Micron “could dramatically improve the supply/demand imbalance that has driven DRAM prices lower all year by closing unprofitable lines, a potential positive for the entire supply chain.”

Freedman says one scenario would be that Micron gets a cash infusion from private equity as part of a larger agreement for Micron to supply wafers for privately held companies such as Freescale and NXP.

Micron today is up 12 cents at $12.78.