DRAM prices plunge 18 percent in two weeks

The contract price of mainstream DRAM chips has plunged nearly 18 percent in two weeks to reach new record lows, an online clearinghouse for the chips reported Monday.

DRAM contracts for the second half of September, which are negotiated between chip vendors and PC vendors and make up about three-quarters of the DRAM market, fell to just US$1.44 per chip, according to DRAMeXchange, from $1.75 per chip in contracts for the first half of September.

Prices of mainstream chips, 1G-byte DDR2 (double data rate, second generation) DRAM chips that run at 667MHz, have been in the doldrums for over a year. DRAM makers built too many factories to compete against each other and on hopes people would take to Microsoft Windows Vista, which requires more DRAM than Windows XP, much faster than they have.

The result has been a chip glut.

A DRAM glut is great news for users because PC vendors often add more DRAM to machines or offer it free as an incentive. People who want to upgrade the DRAM in their PC can also find better prices than normal during DRAM gluts.

But this DRAM glut has been bad for suppliers. Current chip prices are below the cost of production for many vendors.

In the last round of earnings conference calls, most DRAM makers reported steep losses. Only Samsung Electronics remained profitable.

The market situation has been so bad that people are speculating that stronger companies may start acquiring weaker rivals.

A few analysts, including Uche Orji at investment bank UBS, believe Micron Technology, of Boise, Idaho, may be in talks to acquire Germany's Qimonda.

Micron declined to comment. Qimonda did not comment.

Some DRAM makers have also announced production cuts, but even those actions may not have much impact because they affect output in November, when demand normally slows because pre-holiday stockpiling is over.

Hynix Semiconductor, the second largest DRAM maker in the world, announced last week it will shu two older, 8-inch (200-millimeter) wafer factories. Some industry watchers had hoped the closures might boost DRAM prices, but they won't.

The two Hynix factories were not producing DRAM, according to Andrew Norwood, principal memory analyst at Gartner. They were producing NAND flash memory -- another commodity chip for which pricing has collapsed.

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