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Memory chip prices plunge

Prices are once again in a downward spiral as the most popular chip used in PCs has hit an all-time low on the spot market.

Memory chip prices are once again in a downward spiral as the most popular variety has hit an all-time low on the spot market.

The plunge comes after a brief period of price stability which had offered some hope for beleaguered memory chip makers.

Micron, one of the largest manufacturers of memory chips, is seeing price declines, after a three-month respite from price decreases, according to a spokesperson.

The price of 64-megabit DRAMs, the most widely used memory chip today, fell to a record low on the spot market of $6.70 per chip, according to a report in the Nihon Keizai Shimbun, a major Japanese business daily. The report said this was a drop of 17 percent from the end of March and 30 percent lower than mid-February.

Prices started dropping back in March, said Jim Handy, an analyst at GartnerGroup Dataquest. "We first thought it was just inventory clearing," he said, but was then surprised when it continued through the month of April. Handy added that most makers are selling at below cost.

The previous all-time low for 64-megabit DRAM was $6.90, according to the report.

A California-based memory chip reseller confirmed that the price of its modules--which integrate many memory chips--have dropped about $40 since mid-April.

Micron concurs that prices have returned to the steady declines of before. "We have continued to see price declines...though there was a three-month time frame with stable pricing," the spokesperson said. Indeed, there was a ray of hope when Micron, in March, reported profits of $34 million for the second quarter, its first since its first fiscal quarter of 1998. The recovery partly came from the strength of memory prices.

At that time, Sherry Garber, a senior vice president at Semico Research, added that the industrywide cutback in plant investments and production stoppages helped cut down on the oversupply condition that has plagued the industry.

But the Japanese report today attributed the price plunge to a drastic rise in production of memory chips by Taiwan, European, and U.S. manufacturers--despite the increased demand for memory chips from PC makers.

"The Taiwanese are coming on strong and Micron has increased output as well," the Micron spokesperson said. She added that production from Infineon Technologies AG is having on impact on the market too. Infineon is the former semiconductor group of Siemens AG.

"Siemens turned on a whole bunch of new capacity last year," Dataquest's Handy said.

Typically, memory chipmakers pare back production and, as a result, prices eventually creep back up as new high-end PCs are introduced with increased memory capacity to handle more demanding software and tasks such as multimedia. But more worldwide capacity has stepped up to meet demand.

Handy said that in the summer of last year, manufacturer's were selling well below cost but this improved by the end of the year. The market, for most manufacturers, had been relatively stable from late last summer through March, he said.

Although this all presents a gloomy scenario for manufacturers, this is good for people in the market for PCs because the result is more memory at lower prices. Today, many PCs under $1,000 come with 64 megabytes of memory, which was unheard of at the beginning of last year.

If the price of 64-megabit chips falls to around $6, large Japanese chip manufacturers will likely see devastating losses in the range of tens of billions of yen, the Japanese newspaper said.

But others are predicting an upturn this year. Some analysts see growth of about 50 percent in the DRAM market and claim that manufacturers of cutting-edge chips, such as Rambus DRAM, will do well.