Memory Makers' Balancing Act

Memory-chip stocks have lagged other semiconductor names this year because of falling prices, but a turn could be coming for an industry that's learning how to better navigate a volatile field.

Executives from both Samsung Electronics and Micron Technology(MU - Cramer's Take - Stockpickr) have recently made bullish comments about the market for dynamic random access memory (DRAM) chips, citing a thirst for computers as well as an improved balance in supply and demand.

Although part of the expected better conditions will be due to a seasonal second-half increase spurred by greater demand for electronics gear during the holiday and back-to-school shopping seasons, another factor stems from ongoing, long-term structural changes in the industry.

"I think we've hit a bottom, and [DRAM] will grow slowly but steadily for the next couple of years," says Bob Merritt, DRAM analyst with Semico Research. "We're seeing a very healthy trend within the DRAM area where suppliers are committing to ship a wider range of products than they have ever done in the past. This is a very necessary, and very large, change."

For the year, shares of Boise, Idaho-based Micron have dropped 15% to $10.49; those of German rival Infineon Technologies(IFX - Cramer's Take - Stockpickr) have sunk 18% to $8.89.

Having spent years diversifying their production capabilities, the world's largest memory makers are starting to see the benefits. The vicious price swings in the sector brought on by demand-and-supply imbalances can now be better avoided by manufacturers who are more able to shift production from oversupplied market segments into undersupplied segments.

Samsung, the world's largest DRAM producer with 31% market share, and second-largest chipmaker overall, makes a wide array of memory chips beyond the highly commoditized DRAM space, including NAND flash, SRAM and NOR flash.

Similarly, Micron, Infineon and South Korea's Hynix Semiconductor also make a variety of memory devices in addition to DRAM, and all are in the process of further diversifying from DRAM. Together, the four companies account for 76% of all DRAM chips sold in the world, according to researcher IC Insights.