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Samsung renews memory deal for Xbox

Samsung Semiconductor has renewed its contract with Microsoft to supply memory chips for the company's Xbox game console.

Samsung Semiconductor plans to announce Monday that it has renewed its contract with Microsoft to supply memory chips for the company's Xbox game console.

Such long-term supply agreements are particularly valuable in the turbulent memory-chip industry, which saw manufacturers selling dynamic random access memory (DRAM) chips below cost for much of last year just to keep factories open.

Risto Puhakka, an analyst at semiconductor research firm VLSI Research, said that even though memory prices are starting to recover, it is to Samsung's advantage to lock in orders now.

"The long-term contracts present a number of benefits in that suppliers can plan much more efficiently," he said. "You're not in the position of dealing entirely with the spot market."

The Xbox contract also helps Samsung, a leading maker of memory, to diversify.

Each Xbox console uses 64MB of high-speed double-data rate (DDR) DRAM, half of what one finds in the average PC. However, the PC industry is slogging through its worst downturn ever, while game console sales are rising rapidly.

"It shows Samsung is selling into other areas besides PCs, and I think that's to their advantage," Puhakka said.

Microsoft sold 1.5 million consoles from mid-November, when the Xbox went on sale, through the end of 2001. Microsoft projects worldwide shipments of 4 million to 6 million units for its 2002 fiscal year, which ends June 30.

Besides Samsung, major component suppliers for the Xbox include Nvidia, which makes the graphics processor and a custom multi-function chip for the console, and storage makers Western Digital and Seagate, which make the hard drives used in the console.