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DRAM prices plunge to new lows... and may keep going

Soft Vista sales, overenthusiastic factory construction lead to buyers' market

By Dan Nystedt
September 20, 2007 12:00 PM ET

IDG News Service - Anyone looking to add a bit more memory to their computers won a gift from the DRAM (dynamic RAM) industry this week, as heavy competition caused prices to tumble to their lowest level of the year so far. Industry analysts predict further price cuts.

The contract price of the most widely used DRAM chips, 512MB DDR2 (double data rate, second generation) chips running at 667MHz, dropped 12.5 percent from two weeks ago to $1.75 each as of Thursday, a new low for this year according to DRAMeXchange Technology Inc., which runs an online trading site for the chips.

That's great news for users for three reasons. DRAM price cuts increase the likelihood that PC vendors such as Hewlett-Packard Co. and Dell Inc. will add more DRAM to the computers they sell, or offer extra DRAM as an incentive; it give users a chance to buy more DRAM on the cheap; and it generally spurs memory chip makers to move forward on new technology that will ultimately increase computing performance.

Contract DRAM prices for DDR2-667 chips have plunged 70.5 percent so far this year to Thursday's low.

Price pressures have been strong, as memory chip makers built too many new production lines in anticipation of strong demand for Microsoft Corp.'s Windows Vista, which requires more DRAM per PC. In addition, stronger DRAM prices in general for the past few years was a sign to some that the market had stabilized, analysts say.

DRAM prices may continue to decline a bit further, but downside appears limited, according to Gartner Inc. Today's pricing is at a similar level to the lows reached in May of this year, when DRAM makers refused to sell because the price had hit their cash cost.

"However," a Gartner spokesperson said, "we may see some activity below this level, because some brokers and distributors who are holding inventory may be prepared to sell at a lower price to clear stock."

Over the years, DRAM makers have tended to place more emphasis on winning market share than on profits, and the current DRAM price cuts are symptomatic of their battles. Companies have invested so much money in new factories that the increased output has caused a glut, leading to price declines.

Prices for DRAM chips fell almost 40 percent in the first half of this year compared to the first half of 2006 -- offsetting a 66 percent increase in unit shipments, according to the Semiconductor Industry Association.

Contract prices are typically renegotiated between DRAM makers and PC vendors every two weeks. Around four-fifths of all DRAM is sold by contract, while the rest is sold on the spot market, just like commodities such as oil and gold.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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