Memory making a comeback?

The memory chip industry may be making a comeback, fueled by plant cutbacks, the proliferation of high-performance technology, improved manufacturing, and most of all a substantial increase in the amount of memory PC makers are putting into their systems.

A rise in prices for 64-megabit chips began last month, according to Kipp Bedard, vice president of corporate affairs at Micron. Prices for 64-megabit DRAM (dynamic random memory access) chips bottomed out at between $7.50 to $8.10. Now, 64-megabit DRAMs are selling for $8.00 to $8.50.

DRAM is the principal type of memory in PCs today, and the 64-megabit variety is becoming the most widely used chip. By early October, 64-megabit DRAM chips will oust the current 16-megabit standard.

Increasing use of memory is one of the more significant factors in the recent rise in prices, Bedard said, as cheap memory has prompted computer manufacturers and device makers to load up their machines with as much as possible.

Earlier in the year, PCs were projected to contain an average of 55MB (megabytes) of DRAM. Instead, the computer now contains an average of 64MB and will rise to around 83MB by the end of the year. More megabytes per machine indicates more 64-megabit chips are being employed.

As a result, Micron's memory inventory has shrunk from four weeks in May to a relatively manageable level today. "We are significantly lower than the three-and-a-half weeks it was month ago," he said. "DRAM is cheap."

A second major factor has been the development of faster memory chips. Memory for the 100-MHz system bus--a conduit for shuttling data between the processor and memory--is featured with Intel Pentium II chips running at 350 MHz and above, as well as certain K6 chips from Advanced Micro Devices. The 100-MHz bus is optimized to work with a different type of DRAM than the memory made for the older 66-MHz system bus, used on PCs since the first Pentium-based PCs came out in 1993.

A 64-megabit DRAM chip compatible with the 100-MHz memory sells for $1.00 to $1.25 more than its 66-MHz counterpart. Chips with 133-MHz compatible memory will follow, Bedard said.

Manufacturing also appears to be working in Micron's favor. The Nampa, Idaho, company has been shifting to more advanced 0.25 and 0.21-micron manufacturing processes, which allows it to produce more chips per silicon wafer without increasing cost. "We have not increased wafer starts, but we have boosted bit growth by 80 percent," he said.

But while the increase in prices is viewed favorably, analysts are wary of calling this a general recovery.

"Prices may be up for Micron, but not for the rest of the industry," added Mark Giudici, director of the semiconductor supply and pricing service at Dataquest.

"It's a little surprising to me," said Brian Matas, vice president of market research at IC Insights. Instead, Matas theorized that the free-fall in pricing may have hit rock bottom. Prices have stabilized, according to IC Insights, but not yet come up.

Dataquest analyst Jim Handy said that the uptick in prices may be limited to Micron. The good news appears to be that the company can command a premium for the 100-MHz compatible memory. Nonetheless, he disputed Micron's figures on average DRAM usage. According to Dataquest, the average PC only comes with 58MB of memory now and may approach 70MB toward the end of the year.

Manufacturing capacity also remains a problem. Siemens, Handy noted, shut down a state-of-the-art DRAM factory this week. While this is a start, more of these fabs will have to be shut down if the industry is to benefit.

The low-price trend "will carry over to early 2000," Handy said. "We said late 1999 in 1997, but we noticed nobody cut capital expenditures. It's going to require five or six more state-of-the-art fabs to be closed."