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Commentary: The price of a trip down memory lane

Although the situation for DRAM vendors is not catastrophic, it will become increasingly challenging as market prices approach cost.

    By Richard Gordon, Gartner Analyst

    Although the situation for DRAM vendors is not catastrophic, it will become increasingly challenging as market prices approach cost.

    Contract prices for 64MB SDRAM are

    See news story:
    Memory prices sinking on eve of Micron earnings
    between $3.50 and $4, with manufacturing costs running between $3 and $3.50.

    The inventory bubble that is causing downward price pressure in the market will need at least two quarters to burn off. Contract prices for 64MB SDRAM are expected to increase to an average sales price of $6 to $7 in the second half of 2001.

    To succeed in this market, memory vendors must have access to cost-competitive manufacturing and the right technology. The ability to minimize cost per bit depends on a combination of process technology, cell design, and manufacturing equipment. Successful vendors maximize profit margins during a boom cycle and minimize losses during a bust cycle. Survival in the DRAM industry is a matter of how willing a vendor's investors are to sustain short-term losses.

    The competitive environment is complicated by the imminent arrival of Rambus' RDRAM technology into the mainstream PC market with the introduction of the Pentium 4 processor. Although the costs associated with manufacturing RDRAM may be greater than those associated with SDRAM, vendors will be tempted to shift production to this technology because it commands higher prices and because production costs decline as volume increases.

    RDRAM supply will likely be lower than demand, thus ensuring healthy prices. Because the DRAM industry is driven by price, Rambus' success hinges on whether its technology is perceived as expensive. RDRAM prices have, therefore, started to decline and are expected to continue to do so in the coming months.

    (For related commentary on new types of RAM on the market, see TechRepublic.com--free registration required.)

    Entire contents, Copyright ? 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.