While the holiday appetite for memory-hungry multimedia computers will likely mean increased sales of memory chips, prices will probably not rise because of a glut in personal computers and memory chips.
"Although demand for memory chips usually rises in September in light of the upcoming Christmas shopping season, a rebound in chip prices in the Tokyo market is unlikely because of talk of excessive PC inventories," a Hitachi spokesman told Reuters.
Volume prices in certain DRAM markets dropped between $5 and $6 in August, down four percent from prices in July, according to Reuters. Last month, Mario Morales, director of semiconductor research at International Data Corporation, reported that 16-megabit DRAM was selling for $5.80 in certain markets.
Despite Hitachi's statement that a sluggish PC market is causing the drop in prices, a more likely candidate appears to be oversupply in the memory market. PC sales grew between 15 and 17 percent last quarter, according to various sources, a growth rate in excess of expectations.
Prices for 16-megabit DRAM, by contrast, have been dropping rapidly since 1996, after a number of memory makers ramped up production to meet increasing demand. They overshot their target and have been cutting back production and prices ever since.
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.
Morales and others, though, have cautioned that users won't necessarily see the benefit of lower prices right away. The below-$6 prices tend to be coming in the spot market--the quick-trading clearinghouse forum that many manufacturers use to clear out excess inventory, lower quality products, or products that are not selling.
Prices will also only descend so low, according to said George Iwanyc, senior industry analyst at Dataquest. Manufacturing costs run about $5.50 to $6; therefore, excluding fire sales, price erosion can only go so far.
Besides, Iwanyc said, most large computer makers and board manufacturers--the latter purchase chips and incorporate them onto the memory modules that eventually reach consumers--purchase the bulk of their memory in the contract market. There, OEMs and board manufacturers specify the quantities they will purchase for a quarter or a month in advance, and at what price range. Prices are more stable in the contract market and generally slightly higher.
Still, price erosion will eventually hit the consumer. Generally, eight 16-megabit DRAM chips go on a single memory module, meaning that a $1 drop in price leads to an $8 drop in manufacturing cost for each module.
Reuters contributed to this report.