Another chip maker quits the DRAM business

Chip makers aren't showing DRAM much respect these days. Yet another one announced plans Thursday to stop producing DRAM and seek profit elsewhere.

Taiwan's Mosel Vitelic Inc. said it plans to develop solar cells and RFID (radio frequency identification) technology going forward, after years of producing DRAM.

Over the past several years, stiff competition among makers of DRAM chips (dynamic RAM), which are mainly used in PCs to hold data as it's being used, has caused companies to sell their products at a loss. While the low prices can benefit users by helping keep PC prices down, it also stifles innovation by forcing companies to spend less on research. In fact, new DRAM chips are now developed through industry standards groups, while chip makers have focused their energies on finding other, more profitable chips to produce.

Mosel Vitelic is following its former partner Infineon Technologies AG out of the cutthroat DRAM business. The two had a joint venture DRAM factory in Taiwan. Infineon spun out its DRAM operations into a separate company, Qimonda AG, earlier this year.

Other DRAM makers have also sought to shield themselves from the wild price swings in the DRAM market by producing other kinds of chips, such as the flash memory used to store music in digital music players, or image sensor chips for digital cameras.

The culprit for the industry change has been the volatility of DRAM prices. Factors including swings in PC demand can affect prices, sending them from profitable to unprofitable in days. Over the last several years, the situation for DRAM manufacturers was exacerbated by the fact that they have often been forced to sell the chips at a loss due to overproduction: There are simply too many competitors in the industry.

In the aftermath of the Internet bubble, DRAM industry revenue plunged by two-thirds in 2001, causing producers to bleed losses. They've been reworking their business plans ever since.

Now, however, prices for the chips have started to stabilize at profitable levels. Most industry researchers, including iSuppli Corp. and DRAMeXchange Technology Inc., expect tight chip supplies from April through June to lift prices to highly profitable levels. Part of the tightness in supplies is due to a transition to using a more advanced DRAM chip, DDR2 (double data rate, second generation), which recently overtook DDR as the memory chip of choice for PCs. But the main change for pricing is due to the industry consolidation and product shifts that started years ago.

Copyright © 2006 IDG Communications, Inc.

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