DRAM prices continue to plunge

They're expected to remain low for the time being

Prices for the most popular dynamic RAM (DRAM) chips continued to fall in the first half of April, DRAMeXchange Technology Inc. reported today, and have dropped below the cost of production for many manufacturers.

Contract prices of the most widely used DRAM chips, 512MB, 667 MHz DDR2 (double data rate, second generation), dropped another 16.7% to $2.50 per chip, according to DRAMeXchange, a Taiwanese company that runs an online DRAM market.

Around three-fourths of all DRAM chips are bought and sold by contracts between DRAM makers and major PC vendors, such as Dell Inc. and Hewlett-Packard Co. The most recent quotation is for contract chip prices in the first half of April, and they indicate the supply of DRAM has far outpaced demand. The remaining DRAM is sold on open spot markets, like commodities such as oil and gold.

Although many analysts watch DRAM prices as an indication that PC shipments might be slowing down, that's not likely the case this time. DRAMeXchange believes that many chip manufacturers have switched some production lines to DRAM from NAND flash memory, which had seen prices fall for nearly six months before recently stabilizing. The changeover has caused an oversupply in DRAM, while the glut in NAND flash memory has eased.

There does not appear to be any abnormal problem in the PC market, analysts said.

"DRAM vendors may now choose to convert manufacturing back to DRAM again, but the turnaround for the conversion will take roughly three months, so DRAM pricing will not improve in the short term," said market researcher Gartner Inc. in a Sunday report.

Still, the falling price of DRAM represents a blow to memory chip makers. The cost of production for the chips is estimated at between $2.50 and $3.00; the recent contract pricing shows that at least some chip makers are likely producing DRAM at a loss. In the past, DRAM makers have opted to make the chips at a loss to maintain market share, but they do tend to balk at further price declines below the cost of production.

Users looking for more DRAM are likely to see the best prices in retail stores about a month after prices on global component markets fall. Several analysts, including DRAMeXchange, expect the chip prices to bottom out in May, meaning the best prices for users should be in that month and shortly thereafter.

There are other deals that users can look for when DRAM prices fall. Many PC vendors will offer additional DRAM on new PCs as an incentive to buy, because they're able to buy DRAM for less. There is even room for them to reduce the price of a new PC because of lower component costs.

Currently, DRAM prices are falling, the price of LCD panels is stabilizing and the price of the other most expensive part of a PC, the microprocessor, is also on a downtrend, thanks to a battle for market share between Intel Corp. and Advanced Micro Devices Inc.

Last year, DRAM prices surged 61% to end at $6.36 each, as PC makers started making Vista-capable PCs and stockpiled excess chips ahead of the launch of the new operating system. But it turns out that PC makers stockpiled too many of the chips, causing a glut and massive price declines.

Copyright © 2007 IDG Communications, Inc.

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