DRAM glut driving up chip capacity, technology

People can cheer the ongoing DRAM chip glut, despite its impact on companies and their stock prices. Lower prices for the chips are encouraging PC vendors to install more DRAM per box these days, and are prompting DRAM makers to speed-up the introduction of speedier, more advanced chips.

Samsung Electronics, the world's largest DRAM maker, believes the price decline is quickening the adoption of DRAM chips with 3G bytes of capacity, a lot more than previously. Just three months ago, the company said it saw a faster transition to 1G byte DRAM from 512M bytes due to weak prices for the chips.

Currently, the mainstream chip in DRAM is 1G byte, but DRAM makers say they're shipping closer to 2G bytes on average, these days.

A massive decline in prices for the chips is the reason behind more DRAM being used in PCs. PC makers are constantly tinkering with the make-up of components inside a PC to try to create a good PC at the right price for consumers. In times of tight DRAM supplies, when prices go up, PC makers add less DRAM, usually meeting the minimum requirements of the software inside. But current market conditions are allowing them to put in a lot more of the chips without having to raise PC prices and that's good for users because DRAM is often a bottleneck for the overall speed in a PC.

DRAM technology is also advancing due to the downturn. Companies can charge higher prices for more advanced chips, and they're pushing out new technology to battle the chip glut.

The 1G byte DDR2 (double data rate, second generation) DRAM chip that runs at 800MHz is increasing its market share against the mainstream DRAM chip, 1G byte DDR 2 that runs at 667MHz, and companies say DDR3 (third generation) chips will likely become a larger part of the market sooner than expected due to the glut.

Computer parts makers are already hurrying out chipsets, motherboards and other products able to use DDR3 since they can offer the products to computer gamers and other enthusiasts willing to pay a premium for the latest technology.

The most widely used DRAM chips, 1G bit DDR2 (double data rate, second generation) that run at 667MHz, ended trade last week on global spot markets at US$1.94, according to DRAMeXchange Technology, which runs a clearinghouse for memory chips. The price is still near or below the cost of production for most DRAM makers.

So far, Samsung is the only DRAM maker to report a profit in its chip operations during the second quarter. Most of its rivals have posted massive losses.

Qimonda AG, for example, reported a net loss of €401 million (US$628.7 million) in the quarter ended June 30, its fifth straight quarterly loss. The German company blamed a 45 percent decline in average selling prices, in part, for the loss. The company has reported a net loss of €1.48 billion over the past nine months.

Micron Technology, the Boise, Idaho company, reported a US$236 million loss in its most recent quarter, which ended May 29. The company has posted a US$1.26 billion net loss over the past nine months due in large part to low DRAM prices.

DRAM companies have been scrambling to figure out ways to combat the chip glut. DRAM prices have remained near or below the cost of production since late last year. The problem started when they built too many new factories on hopes that Microsoft's Vista OS would cause consumers and companies to start buying new PCs en masse. Vista has boosted the PC market, where around two-thirds of all DRAM go, but the uptick hasn't been as fast or broad as expected.

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