Memory production to quadruple

Escalating production of 64-megabit DRAM chips is prompting price erosion, a trend that will likely end with the dense memory chips being incorporated in desktops in 1998.

A total of 87.8 million 64-megabit DRAM chips will be produced in 1997, while 372 million will be produced in 1998, according to George Iwanyc, memory analyst at Dataquest.

Meanwhile, the price continues to drop, according to a study from Nikkei Market Access. In the third quarter alone, the price for certain computer vendors has declined from $32.80 in volume to $25.40, the study reported.

While the Nikkei study predicted that only 71.6 million 64-megabit DRAM chips would be made this year, it found a correspondence between production and prices. Close to 3 million chips were produced in 1996. The volume price at the time, according to various analysts, was approximately $250.

In the first quarter of 1997, production rose to 4.45 million chips. That figure rose to 7.35 million for the second quarter, 22 million for the third, and a projected 37.8 million for the fourth. Prices have slid throughout the year as production has risen.

Falling memory prices have sent shock waves through the ranks of manufacturers all year. Motorola quit the market this summer while Samsung, among others, suspended production to shore up prices.

The problem can be traced back to 1995, analysts and executives have said, when sunny projections for consumer demand led to over-investment in memory production capacity. Despite the difficulties, Taiwanese manufacturers announced recently that they planned to expand DRAM production.

The industry's crisis, however, has been a boon to consumers because more memory can be added to computers or memory module cards for a lower cost. Module makers typically measure the amount of memory on modules in terms of megabytes.

If the pricing and production trends continue, 64-megabit DRAM memory, which are currently used in workstations and servers, will likely end up in desktops, which currently make do with less dense 16-megabit DRAM chips, said Iwanyc.

"When it becomes four to five times more expensive [than 16-megabit chips[, it will become a much more common part," he said,. "If manufacturers think that it's sustainable, they will start to build this parts in to their computers."

Prices for 16-megabit DRAM chips have slid from $12 per chip in volume at the end of 1996 to between $5.50 to $7 now, just above manufacturing costs of $5.50, according to estimates from Dataquest and others.