Shares of Micron, one of the largest memory makers, have surged this week amid enthusiastic reports from analysts that prices will continue to rise because of a growing shortage of DRAM, the type of memory found inside PCs.
The stock rose 16 percent to $89.88 from $77.38 during the first two days of trading this week and traded as high as $94.50 today before closing around $91 a share. Earlier this week, Salomon Smith Barney analyst Jonathan Joseph upped his earnings estimates, predicting Micron will report $1.52 billion in sales and post earnings of 38 cents per share, a 6-cent increase from his prior estimate.
Analysts have been looking for Micron to earn 34 cents a share, according to the consensus estimate from First Call/Thomson Financial.
Depressed for three straight years, memory prices came out of their slump last September in the wake of the Taiwan earthquake. Prices once again began to slide in November. Since May, however, memory prices have picked up in anticipation of strong PC buying in the second half coupled with shortages. Memory is still less expensive than it was in January, but is climbing rapidly.
For instance, the average surplus market price for 128-megabit 133-MHz SDRAM--the type of memory found in high-end Athlon or Pentium III computers--rose 19 percent, from $14.06 to $16.74, from June 8 to June 15, according to the American IC Exchange.
"We believe the recent upsurge in prices is driven by an expected DRAM shortage in the second half of 2000," stated a Merrill Lynch report from earlier this week.
Joseph said Micron is seeing improved yields from its overseas plants and is also selling more EDO (extended data out) chips, a flavor of memory chips that is commanding prices roughly double that of SDRAM.
"These are positive trends that will continue (into the coming quarters)," Joseph said.
Analysts have long said that memory prices should head higher during the second half of this year as demand begins to outstrip capacity.
However, the improved outlook for the second half of the year hasn't stopped two major Micron shareholders from cashing in. Texas Instruments, which sold its memory chip unit to Micron in 1998, has been selling, as has Intel, which yesterday reported that it would have $1.6 billion in higher-than-expected income from stock sales, predominately that of Micron.
Joseph estimated that Intel may have sold as much as 20 million of its 25 million shares.