Skip to main content

Shares of DRAM-maker


(MU) - Get Micron Technology Inc. Report

vaulted up 8% in Tuesday trading as market research firm Gartner declared a recovery under way in the PC memory market.

The company, which ranks second in the global DRAM (dynamic random access memory) market, tacked on $1.03 to $13.79 in late-afternoon trading. Shares of No. 3-ranked



traded up 43 cents, or 3.4%, to $13.17.

Tuesday morning, Gartner forecast that global sales of DRAM, a type of memory used in PCs, will post year-on-year growth of 22% this year to $18.9 billion. In the third quarter, the market is projected to grow 38%, to $5.1 billion.

But Gartner took care to describe the upturn as tentative. The rebound has occurred not because of greater demand for memory, said the firm, but rather because memory makers finally have been able to bring excess supply back into line.

Helping matters, No. 1 vendor


(which currently controls about 28% of the market) decided to cut back on production of DRAM in favor of another type of memory known as NAND flash, which is used in digital cameras.

Scroll to Continue

TheStreet Recommends

"Stabilizing prices and lower inventories alone do not constitute a recovery in the DRAM industry, but these factors combined, and the positive sentiment in the DRAM industry, point to the possibility that the DRAM industry recovery has, at long last, begun," said Andrew Norwood, principal analyst for Gartner's semiconductor research group.

Prices of memory started stabilizing in the second quarter of this year and are expected to rise 20.5% in the third quarter to $5.55 for 256 Mb of memory, according to Gartner.

DRAM trades on the spot market for about $4.70 now, up from its February lows in the $3 range, says research firm iSuppli.

But not everyone agrees with Gartner's take on the near-term outlook for DRAM makers. Nam Hung Kim, senior analyst at iSuppli, calls Gartner's forecast for 22% growth "optimistic." His firm is forecasting growth of only about 6% or 7% this year.

After rising for two months, DRAM prices actually have declined over the past couple of weeks, says Kim. "Spot traders are expecting a second-half recovery, but a few have lost their confidence and cashed out their inventory in the last two weeks," he explains.

Kim agrees the market is in recovery mode. "Usually, DRAM prices are pretty good in the second half and this year the PC market looks good." But he doesn't expect a dramatic upswing. iSuppli projects that PC unit shipments will grow by 10% this year.

Gartner likewise cautioned that the current rebound is a fragile one. "We have been here before, and if the DRAM vendors become greedy and increase production, the industry will quickly swing back into oversupply and prices will crash," acknowledges Norwood.

While the rebound in the DRAM market comes as welcome news to investors in the area, firmer prices stand to hurt PC makers.


(DELL) - Get Dell Technologies Inc. Class C Report



(HPQ) - Get HP Inc. Report

lately have been the focus of some concern among analysts worried that margins at hardware makers could take a hit, because the costs of components such as memory have stopped declining as rapidly as in the past.