Rising (dynamic RAM) prices could mean bad news for
users who hope to find cheap computers packed with lots of
memory.
A three-month rally in memory prices is causing discomfort among
PC makers and may lead to cuts in the amount of Dram shipped with
some low-end PCs if prices continue their push upwards, industry
observers have warned.
If memory prices rise too much, PC makers would be faced with a
choice of either reducing the amount of memory in some systems or
raising PC prices. If memory cuts are made, users will have to pay
extra to increase the amount of Dram inside their PCs.
On Tuesday, spot pricing in Asian markets for a 256Mbyte module
containing 266MHz DDR (double data rate) Dram was around $39.50,
according to market analyst ICIS-LOR, which tracks memory
pricing.
By comparison, the same modules were selling on the spot market
or around $28.25 on 1 january and for around $25.00 on 1 April 1,
2003.
Spot prices for other memory types, such as Sdram (synchronous
Dram) and 333MHz DDR, have also shown significant gains during the
same period. Contract prices, which represent the bulk of memory
transactions, have also been rising but the change has not been as
steep as in the spot market.
At Samsung, the world's largest Dram producer, customers are
"uncomfortable" with the increase in memory prices, said Kim Il
Ung, vice president of the company's semiconductor business.
The price rise threatens to slow down the trend of increasing
the amount of memory that original equipment manufacturers ship
with each PC, Kim said.
Samsung's 10 largest customers shipped an average of 440Mbytes
of Dramwith each PC during the first quarter of 2004, an increase
of 15% over the previous quarter, Kim said.
Kim estimated that PC makers could reduce the average amount of
memory per PC if prices for a 256Mbyte DDR module rise above $42
but conceded Samsung is not certain exactly where the breaking
point lies for PC makers.
"We are trying to make a survey of what will be the breaking
point of megabyte per system in terms of pricing," he said.
Looking ahead to the second quarter, Kim expected memory demand
to remain strong because of healthy corporate demand for PCs and
demand for DDR2 memory. But supply will remain tight because of low
production yields of DDR2 chips and problems encountered by
manufacturers migrating their memory production to more advanced
production processes.
The surge in spot prices for Dram chips and modules has caused
panic among PC makers, according to Nam Hyung Kim, a principal
analyst at iSuppli.
"If the price increases are too sharp, they could serve to
depress Dram sales in the second half of the year. PC OEMs may cut
the average Dram content in their systems to accommodate the higher
cost," he added.
Intel is also watching the rise in memory prices.
"There's a lot of rumblings right now that memory prices in
general are going up and we're still trying to run ourselves
through it," said Louis Burns, vice president and general manager
of Intel's Desktop Platforms Group.
"I don't see it as a big issue [but] we're paying very close
attention," Burns said.
Gartner prinicipal analyst Andrew Norwood downplayed the
significance of rising memory prices, noting that Dram makers have
laboured through an extended downturn and are now in the midst of a
recovery, reflected by higher memory prices.
Moreover, this is not the first time that OEMs have been faced
with the possibility of reducing Dram content to avoid raising PC
prices, he added.
The business model of PC makers is based on declining component
costs, which allows OEMs to offer PCs with greater performance at
the same or lower price, he said. However, the Dram market
sometimes bucks this trend with higher prices, as is happening now.
Norwood noted that PC makers have benefitted from low memory prices
in recent years.
"Every PC sold over the past two years has had about $30 of free
Dram in it," Norwood said, explaining that many memory makers have
been forced to sell memory chips at cost or at a loss in recent
years.
"The PC OEMs have really had it good over the last two years and
it's time they stopped getting a free ride."
With OEMs keeping an eye on rising memory prices, there are
signs that the upward pressure on memory pricing may have already
abated somewhat.
"End users appeared to have picked up sufficient parts over the
past weeks to tide them over immediate requirements and were said
to be keeping to the sidelines for the moment," ICIS-LOR said,
commenting on developments in the memory market last week.
On Tuesday, activity on the Asian spot market showed signs of
picking up again as prices remained steady and Dram sellers
indicated they were unlikely to fall because of tight regional
supply of memory, it said.
With some prices having stabilised or even fallen in recent
weeks, the big question is what happens next.
"In terms of future pricing trends, the major question now is
whether spot buyers and system manufacturers are going to buy more
Dram at the present high prices, or wait for a downward
adjustment," iSuppli's Kim said, adding that present spot market
prices are "overheated" and should start to drop next month.
However, any respite from higher memory prices may be brief.
ISuppli expected to see a Dram shortage during the second half of
the year, as demand for memory outpaces increases in production
capacity.
Market analyst IDC also expected to see a shortfall in supply of
memory later this year. In a February report, it predicted a supply
shortage of 4% to 5% during the fourth quarter as suppliers shift
production capacity to non-Dram memory types to diversify their
sources of revenue and boost profits. However, IDC said it did not
expect to see PC makers reduce the average amount of Dram shipped
with each computer.
The average amount of memory shipped with each desktop computer
will rise from 438Mbytes during the first quarter - a figure that
is close to Samsung's estimate of 440Mbytes - to 472Mbytes in the
second quarter, IDC said.
The second half of the year will also see increases in the
average amount of memory to 500Mbytes and 528Mbytes during the
third and fourth quarters, respectively, it added.
These increases in average memory per PC could be slowed down if
memory prices remain high, said Soo-Kyoung Kim, program director
for semiconductor research at IDC and author of the February
report.
IDC's Kim expected memory prices to fall off somewhat during May
before rising again in August and September. The price increases
are the result of supply-related problems, rather than demand, and
memory makers are expected over the coming weeks to heed the calls
of OEMs to adjust their production to meet demand, he said.
OEMs can hold out in the face of higher memory prices for
several more months before adjustments will be needed to PC memory
configurations, he added, but if prices remain high through the
third quarter, OEMs will be forced to make some changes,
particularly at the low end of their product lines.
Even so, Gartner's Norwood did not expect OEMs to cut
significantly the amount of Dram shipped with low-end PCs and noted
the amount of Dram will rise again before too long.
Sumner Lemon writes for IDG News Service