It appears that the post-earnings bump that Micron Technology (NASDAQ:MU) enjoyed last month might be here to stay, as the memory industry's dynamics seem to be turning in its favor as per Gartner's latest estimates.

The research firm points out that memory will be the only bright spot in an otherwise gloomy semiconductor market this year. While overall semiconductor sales are expected to decline 0.9% in 2020, Gartner is anticipating a 13.9% jump in the memory market's revenue -- setting the stage for Micron to sustain its recent turnaround.

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Market dynamics could favor Micron's turnaround

An oversupply of memory chips crushed Micron's top and bottom lines over the past year as prices crashed on account of weak demand.

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But the tech giant's fiscal second-quarter results that were released late last month surpassed expectations, and its guidance was proof that the company's financial performance has finally hit a bottom. The company expects to return to revenue growth this quarter on the back of robust data-center demand and supply shortages.

Micron CEO Sanjay Mehrotra said on the second-quarter earnings call that memory demand from data centers and personal computers continues to remain strong. That's not surprising, as an increase in the number of people working from home, taking classes online, or resorting to e-commerce purchasing necessities as a part of social distancing measures has created extra load on data centers and also led to an increase in PC sales.

Micron had geared its production line to produce more data center-centric products instead of smartphones. That move has paid off as smartphone demand crashed in the wake of the novel coronavirus pandemic. The good news for Micron is that demand from cloud service providers is expected to remain strong in the coming months.

Gartner reports that the server DRAM market's revenue will grow in the first half of 2020, thanks to favorable pricing and demand. However, the overall DRAM market's revenue could drop 2.4% this year thanks to weak smartphone demand.

That might weigh on Micron's top line to some extent, as the company gets 27% of its revenue from the mobile business unit. The silver lining for Micron is that 42% of the company's revenue comes from the computing and networking businesses, which could benefit from an increase in data center and PC demand.

Meanwhile, the NAND flash memory business that supplies just over 30% of the company's total revenue might benefit from tight supply. Gartner points out that NAND flash revenue could jump 40% this year on account of short supplies.

In all, there still remains a scenario in which Micron could beat the novel coronavirus blues and sustain its turnaround.

Red flags you shouldn't miss

While supply disruptions could tilt the market dynamics in Micron's favor and lead to higher memory prices, they also have the potential to hurt the company's business. The company has admitted that it is in a "very fluid situation" and visibility remains low thanks to the effects of COVID-19.

This means that Micron bulls should be ready for unpleasant surprises that may arise out of potential weakness in demand or problems in production. For instance, Micron's operations in Malaysia hit a bottleneck when the government imposed a lockdown.

The company managed to tide over that problem once the government added semiconductors to the list of essential services. But the problem is that Micron's operations resumed on a limited basis in Malaysia. Now that Malaysia has decided to extend its partial lockdown, the company's operations might take some more time before they return to normal.

Given that Micron's locations are spread across Asian countries such as Taiwan, Singapore, South Korea, Japan, and China, the chance of its supply chain being disrupted continues to linger if the COVID-19 spread isn't contained completely. So there is a possibility that Micron may not be able to meet demand if supply chain disruptions hit it hard.

The upside to any severe supply chain disruptions is that the prices of NAND and DRAM could keep rising. Micron could take advantage of the same when things go back to normal, so investors could think of making a measured bet on this tech as it is operating in an industry that can weather the coronavirus crisis.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.