Analysts mixed on longevity of DRAM price surge

An unexpected surge in the price of dynamic RAM memory chips appears to be settling down this week.

An unexpected surge in the price of dynamic RAM memory chips appears to be settling down this week, but analysts are mixed as to where prices will go from here. The increase, which began late last month, came after months of plummeting prices for 4Mbit and 16Mbit DRAMs, enticing PC makers to increase their standard memory configuration and users to upgrade their PCs with add-on memory modules, known as SIMMs or single in-line memory modules, analysts say.

But with the upturn in prices that virtually came overnight, the windfall of the last few months may be over, some analysts say. "What a difference a day makes," says Peter Wolff, senior analyst, Asian technology equities at ING Barings Securities (Japan). "This could be the start of something interesting."

Analysts and industry sources say that DRAM and SIMM prices hit bottom in September, with 16Mbit prices hitting as low as US$6 to US$7, and 4Mbit parts going as low as US$1.60. The price of the now-standard 16Mbit chips has risen from a low of US$6 to its current price of roughly US$12, Wolff says. As recently as Monday last week, 16Mbit parts were still selling for US$7.50, says Peter Chang, president of Hsinchu, Taiwan-based United Semiconductor (which fabricates DRAMs under a joint venture with Alliance Semiconductor).

"We've seen a 20% rise in the price on certain devices in the past four days," says Dataquest analyst Jim Handy last Friday, referring to the 4-by-4 16Mbit DRAMs that some analysts say now are in short supply. Currently, such 4-by-4 parts are selling for around US$14, while the prices of other 16Mbit parts also have passed the US$10 mark, says Matt Cleary, electronics analyst at securities broker HG Asia's Seoul, South Korea office. A 16Mbit chip equals 2Mb of memory.

For an explanation of the price jump, analysts are pointing fingers at the effects of the upcoming Christmas PC-buying season on an industry in which all sectors have recently experienced DRAM price turmoil. "We are looking at period with perhaps the strongest demand in the year and the demand surge comes at a time when most makers have cleared out a lot of inventory," says HG Asia's Cleary, referring to the year's fourth quarter that traditionally sees a surge in PC sales.

The price drops -- which over the last year approached 90% for some DRAM products -- left PC makers and memory board suppliers loath to buy chips up front when in a day prices would likely drop further. As a result, major OEM companies like Compaq and add-on memory board maker Kingston Technology have run extremely low on inventory of DRAM chip, analysts say.

Now with users lapping up cheap memory upgrades and PC makers taking orders in advance of the Christmas rush, everybody wants DRAMs. But PC makers don't have the chip inventory and so are looking to buy chips on the spot market, a commodities market where most of the recent price increases have been concentrated.

Looking ahead, many analysts say prices will likely stabilise. "We don't expect memory prices will go up that much or stay up that long," says Mel Thomsen, a principal analyst at San Jose, California-based Pathfinder Research. "Last week was a blip and prices will go back down as soon as a few more wafers get manufactured," he says referring to the silicon disks from which the chips are cut.

Thomsen recommends users continue to stock up on memory and not to expect price declines like those seen last year: "The free fall in prices is over," he says. "If you're contemplating buying more memory for a PC, there's no need to wait."

And although the unexpected price surge is good news to DRAM makers, it may be short-lived, says HG Asia's Cleary. "By early next year it could well be back to zero again," he says, referring to the next-to-nothing profits the makers have experienced in the past few months.

But some analysts read the tea leaves differently for buyers of SIMM modules. "There's still room for modules to come down," says Dataquest's Handy. "Chip prices have come down but modules have stayed kind of high," he says adding that buyers should look for a module price of less than US$5 per megabyte.

On the open market, however, SIMMs currently command a substantial premium over just a week ago, according to the American IC Exchange (AICE), which tracks 50 DRAM vendors worldwide and operates as a technology clearinghouse for OEMs who buy and sell excess inventory of DRAMs. Several SIMM cofigurations yesterday were selling at almost twice the price from their lowest price levels at earlier this year, according to AICE.

Such spot market prices, however, tend to fluctuate wildly during crunch periods, analysts says.

Ddespite the sudden surge in DRAM prices, PC makers are expected to continue offering more DRAM in standard configurations, analysts and industry sources say. "Now we're seeing 32Mb of RAM as standard, a year ago 16Mb was the top of the line in high-end computers," says Jeff Weir, spokesman for the San Jose, California-based Semiconductor Industry Association. "If this DRAM pricing situation lasts much longer we'll seee them offering 64Mb RAM," he says. "We may see it anyway because of memory-draining appetites of the Internet."

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