Shares of Micron Technology Inc jumped as much as 11 percent on a report that one its biggest competitors, Elpida Memory, may merge with Toshiba Corp, in a sign of consolidation in an industry hurt by cut-throat competition.
On Tuesday, DigiTimes reported that the Japanese government was brokering talks between the troubled DRAM (dynamic random access memory chips) maker and Toshiba to merge operations.
The Elpida news is a definite sign of consolidation which could lead to significantly better pricing in the industry, Nomura analyst Sidney Ho told Reuters.
Micron -- the only U.S. maker of DRAMs in a market flooded by Asian rivals -- has seen margins deteriorate over the last couple of quarters as oversupply hurt margins.
According to DRAMeXchange, an industry tracker, DRAM contract prices fell 58 percent last year, while spot price decreased 70 percent.
Elpida -- the number three maker of DRAMs -- has been struggling to pay back debt and was reported to have been in talks recently with Taiwan-based Nanya Technology to raise funds.
We do expect a further consolidation in commodity DRAMs which eventually will lead to a price stabilization, starting in the second quarter, Robert Baird analyst Tristan Gerra said.
The DigiTimes report cited unnamed sources to say Toshiba may not attempt to return to the DRAM market if it integrates with Elpida.
From a memory consolidation perspective it's a positive for the industry, that's what the market is looking at, Raymond James analyst Hans Mosesmann said about the report.
Shares of Micron, which is valued at $6.2 billion, were trading up 6 percent at $6.68 around midday on Nasdaq after touching a high of $6.96 in morning trade.
Separately, Barclays Capital raised the DRAM memory maker's stock to overweight, citing better pricing in 2012, even as the brokerage downgraded five other technology stocks, including Intel Corp.
It expects Micron to benefit from higher pricing and stronger PC sales, likely from the second half of the year, the brokerage wrote in a note.
(Reporting by Himank Sharma, Rachel Chitra and Ashutosh Pandey in Bangalore; Editing by Tenzin Pema and Joyjeet Das)