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128Mb memory chips on tap for '98

Manufacturers will release 128-megabit DRAM chips next year to meet the demands of both computer makers and the bottom line.

Memory chip manufacturers will release 128-megabit dynamic random access memory (DRAM) chips in 1998 as a way to meet the demands of computer makers and their own bottom lines.

Japanese manufacturers NEC Electronics, Toshiba, and Fujitsu, as well as some Taiwanese and Korean makers, will release a 128-megabit chip next year, according to various sources.

These high-capacity memory chips could ultimately put much more memory in PCs. One 128-megabit chip would hold eight times the data of the current 16-megabit generation, paving the way for a generation of PCs that come with a minimum of 64 megabytes (MB) of memory. Today, the minimum is typically 16MB.

"A lot of OEMs have been requesting it," said Mario Morales, director of semiconductor research at International Data Corporation. "We'll see sampling in the first half of 1998, with volumes in the second half." The new chip will start to appear in workstations and make their way into PCs by 2000. The move will essentially double standard memory.

A 128-megabit chip will be a transitional chip, said analysts and computer executives. Typically, memory vendors upgrade by a factor of four. The 4-megabit chip was succeeded by the 16-megabit chip, which in turn was followed by the 64-megabit chip. Currently, 16-megabit DRAM is the standard memory for PCs. Later in 1998 or 1999, 64-megabit DRAM, which reigns as the current workstation standard, will start to be included in PCs.

A 256-megabit chip would be the next logical step. However, a 128-megabit chip will help ease the jump. Computer makers will get only the memory they need at that time while memory makers will be able to stretch their plant investment at a time when many are facing severe price competition. The 128-megabit chip will be based on processes similar to ones in the 256-megabit chip, thereby giving more life to the investment.

"When we went from 4 to 16, there was a demand for 8," noted N.D. Reddy, chief executive officer at Alliance Semiconductor (ALSC), a chip contract manufacturer. "I believe we could see 128 fabs popping up."

The memory market has ridden a roller-coaster for over two years. Prices for the 16-megabit DRAM chip have been plummeting since 1996, after a number of manufacturers invested heavily in memory manufacturing facilities in 1995 to meet escalating demand. The investment led to a glut. By 1997, major manufacturers started to cut back on manufacturing to bring the price back up, a trend that continues.

Prices for 16-megabit chips dropped from the $12 range in early 1996 to above $7 at the start of 1997, and to $7 in June, said Brian Matas, a market research analyst at Integrated Circuit Engineering. Chips in the spot market--it acts as a clearinghouse for excess inventories--have dropped to $6, while chips in the contract market are selling for $7 to $8. Manufacturing costs run around $5.50 to $6.

Micron Technologies (MU) is one of the few vendors making money off 16-megabit DRAM at the moment, said Matas.

Meanwhile, 64-megabit memory chips cost close to $250 in quantity in January 1996, dropping to $90 by December 1996 and to $40 to $45 today, said Matas. By the end of the year, 64-megabit chips will sell in the $30 to $35 range.

Although barely profitable, DRAM will continue to erode in price, especially with 64-megabit DRAM, as vendors jockey for market share in the third and fourth quarters, said Morales.

Price erosion eventually works to the advantage of customers, especially since computer makers and board manufacturers buy the chips en masse: Eight to 32 16-megabit chips fit onto standard memory modules, so a drop by $1 can mean a reduction of up to $32 in manufacturing costs. Such reductions can then lead to lower consumer prices.