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Memory maintains price free-fall

The price for ubiquitous 16-megabit DRAM memory chips has hit $6 in certain markets.

Memory chips have hit $6 and below in the spot market, a new record that will eventually translate into lower computer and memory prices.

"We've seen as low as $5.80 in some places" for 16-megabit dynamic random access memory (DRAM) chips, said Mario Morales, director for semiconductor research at International Data Corporation. That is nearly rock bottom, he said, but he added that memory manufacturers plan to jockey for market share over the next two quarters, which could continue to erode prices.

DRAM memory that has a data capacity 16-megabits is the most commonly used type of memory chip today and is found in many personal computers that are shipping this year. The 16-megabit chips are incorporated into memory "modules" that offer data capacities of, for example, 16MB, 32MB, and 64MB.

The Maeil Business Newspaper in Korea reported that the Ministry of Trade, Industry, and Energy there said the spot price declined to $6 but that recovery was likely, according to a report in Nikkei's JapanBizTech online news service.

Morales and others, though, caution that users won't see the benefit of lower prices right away. The $6 price is coming up in the spot market--the quick-trading clearinghouse forum that many manufacturers use to clear out excess inventory or products that are not selling.

It may be lower-quality memory chips getting the rock-bottom pricing, said George Iwanyc, senior industry analyst at Dataquest.. The price could also be the result of a sudden glut at a few manufacturers, he said. Manufacturing costs run about $5.50 to $6; therefore, excluding fire sales, price erosion only has so much further to go.

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 manufacturer 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, he said.

Currently, prices there are between $7 and $8, according to various sources. 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 means an $8 drop in manufacturing cost for each module.

Prices for 16-megabit DRAMs have been plummeting since 1996, after a number of manufacturers invested heavily in memory manufacturing capabilities in 1995 to meet escalating demand. The investment led to a glut. By 1997, major manufacturers such as Samsung started to cut back on manufacturing, a trend that continues.

The 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. Matas predicted in June that the general price for 16-megabit chips would hit $6 toward the end of the year.

Interestingly enough, the glut has presented a mixed bag for manufacturers. Motorola (MOT) announced last month that it would get out of the DRAM market. By contrast, Micron Technologies (MU) said 16Mb DRAM sales contributed to higher-than-expected profits in the last quarter.

"It's not been a terrible summer. Prices are actually stable at this point," said N.D. Reddy, chief executive officer at Alliance Semiconductor (ALSC), a foundry for DRAM. Prices have eroded to around the $7 range, but demand for memory has remained. As low-cost computers and products such as wireless communication devices come onto the market, DRAM demand will bring revenues and margins back up.

Even if the price drops to $6, "It is still a profitable business," Reddy added.

The 64-megabit chip--the next generation of standard PC memory--has suffered price erosion as well. The chip cost close to $250 in quantity in January 1996, dropped to $90 by December, and now sits at $40 to $45, said Matas. By the end of the year, he said, it will sell in the $30 to $35 range.