DRAM prices drop again; deals likely through June

A glut in the memory market is keeping prices down

Users looking to add more dynamic RAM to their PCs are likely to see bargains throughout May and June as prices of memory chips continue to crash.

The contract price of the most widely used DRAM -- 512Mbit, 667-MHz double data rate, second generation (DDR2) chips -- slid below $2 for the first time in the first half of May. The chips dropped 8.8% from mid-April to $1.94 per chip, according to DRAMeXchange Technology Inc., a Taiwan-based company that runs an online DRAM market.

That's great news for users. Falling DRAM rates can help offset recent increases in prices for LCD panels and keep PC prices in check. Users wanting to boost their systems' speed can also add more DRAM at a low cost. These prices aren't likely to last longer than the next few months. At $1.94 each, the chips are well below the $2.50 to $3 cost of production for chip makers, which will likely shift their production strategies in order to reverse the decline.

The second half of the year is also the strongest for PC sales, another factor that could stop the current downward trend.

DRAMeXchange said the DRAM market appears to be weaker than expected in May and June, and many companies in the supply chain, including module makers and PC vendors, have already built up inventories. Prices won't rebound until these inventories are drawn down.

The fall below $2 was also significant because of its relative ease, noted Gartner Inc. There was less resistance at that psychologically important level than expected, the industry researcher said.

Even though chip makers are producing DRAM at a loss, prices may not rebound quickly. The companies have to continue selling the chips to bring in cash so they can pay for their expensive DRAM factories. They could try shifting some production to other products, such as NAND flash memory and image sensors, where prices are firmer, but it takes months to tweak production lines for such a change. BY making that kind of shift, they could miss an uptick in the DRAM market.

Around three-fourths of all DRAM chips are bought and sold through contracts between DRAM makers and major PC vendors such as Dell Inc. Prices are renegotiated twice per month. The remaining one-fourth is sold on open spot markets, like commodities such as oil and gold.

Contract prices of the chips have fallen 67% since the start of the year, when they were fetching $5.95 each. 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 said the decline was caused by chip makers switching some production lines to DRAM from NAND flash memory, which had seen prices fall for nearly six months before recently stabilizing. The change has caused an oversupply in DRAM, while the glut in NAND flash memory has eased. There does not appear to be any problem with the PC market, analysts said. 

Copyright © 2007 IDG Communications, Inc.

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