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Falling prices mean more memory

Declining prices in the memory market make it likely that computer makers will start using the newest 64-megabit memory chips.

There's nothing like low prices to push technological change.

Declining prices in the memory market make it likely that computer vendors will start using the newest 64-megabit memory chips, quadrupling the amount of memory most users get in today's desktops, in high-end desktop PCs later this year.

Today's standard memory is the 16-megabit chip. A 64-megabit chip can pack four times as much data in the same size chip package.

The memory chips themselves are delivered on small circuit boards called modules. New modules containing 64-megabit memory chips would allow PCs which currently come with 16 megabytes of memory, for example, to pack in 64 megabytes in the same space.

Currently, these chips are used in pricey server computers and workstations. Broader use should begin to occur in 1998 with widespread deployment toward 1999, according to analysts. And while there will undoubtedly be more memory-gobbling applications out by then, the change is mostly being pushed because the price makes it easy.

Gary McDonald, vice president of sales and marketing at Kingston Technology said that higher-end desktops incorporating 64-megabit memory should start appearing in late fall, after the release of a new chipset from Intel.

The adoption schedule of the chips, he added, will be determined in a tug of war between the chip makers and computer vendors. Chip makers want to shift to 64-megabit as soon as possible so they can recoup their investments. Computer makers, however, tend to favor lower cost memory to keep overall prices low. Memory typically constitutes about 10 percent of a computer's cost.

In any event, the coversion at this point isn't being primarily driven by technology. "I don't see any killer application on the horizon that is going to be a DRAM fueling factor," McDonald said, although the pace of technology is certainly driving up memory demands.

"We expect PC adoption to occur in the second half of 1998," said Mario Morales, manager of semiconductor research for International Data Corporation. Right now, the market remains very volatile. 1996 was a dramatic year for prices. They dropped 65 to 70 percent...We don't expect to see balance until the end of 1998."

The watershed moment for the transition to 64-megabit chips from 16-megabit chips will likely come when approximately a 4 to 1 pricing ratio exists between the two, said Morales and others.

The DRAM market revolves around a three-year cycle of boom and bust. Memory shortages lead to increased investment in manufacturing capacity by chipmakers, which then quickly devolves into oversupply, price wars and accelerated depreciation. When high end memory chips start to sell for around four times more than the current standard, computer vendors and circuit board makers switch because the new prices can be justified or hidden in their own cost structure.

Demand projections and memory shortages earlier in the decade prompted an surge of plant investment for both 16- and 64-megabit memory, said Jim Handy, a memory analyst at Dataquest. That lead to a product surplus and price declines by early 1996. "They over-invested," he said.

Continuing price declines indicate that The 4-to-1 relationship is right around the corner for 64-megabit memory.

The 64-megabit memory chip costs close to $250 in quantity in January 1996, dropping to $90 by December 1996 and to around $40 to $45 today, said Brian Matas, a market research analyst at Integrated Circuit Engineering.

By the end of the year, 64-megabit chips will sell in the $30 to $35 range. By contrast, 16-megabit chips have dropped from the mid-teens in early 1996 to $7 now and will be close to $6 by the end of the year.

"At that point it will still be above the level" required to prompt vendors to move, he said. But, by the end of the first half, the ratio will likely be achieved. Systems, he predicted, will roll out subsequently.

By 1999, 64-megabit memory will be commonplace, pointed out Handy. Just in time, ironically, for the next cycle.

"There will be another shortage in 1999," he said.