Prices augur more memory in PCs

Prices for the latest generation of memory chips have dropped down close to $10 in certain markets, and their continuing plunge will probably lead to the introduction of high-capacity memory into standard PCs toward the latter part of the year.

64-megabit DRAM (dynamic random access memory) chips, which are primarily used in pricey servers and workstations, are now selling for between $10 and $11 in select spot markets, said Mark Giudici, director of semiconductor supply and pricing at Dataquest.

While the price slide hurts manufacturers, consumers are getting more memory than ever before. DRAM is used as the main memory in all PCs today.

The phenomenon presages the emergence of mainstream PCs with 64MB (megabytes) of memory standard. Today, most PCs come standard with 32MB. Generally, the more memory a PC has, the faster it performs.

But the additional memory may be needed. Forthcoming operating systems such as Windows 98 and Windows NT 5.0 will require more than today's operating software to work efficiently.

Despite production cutbacks by major memory manufacturers, memory prices continue to erode due to a variety of factors, including excess chip supply, the Asian currency crisis, and improved manufacturing efficiencies.

The latest drops in 64-megabit pricing are significant in that prices are approaching four times the price for 16-megabit DRAMs. Historically, when the 4X price point is hit, computer vendors switch to the higher density memory.

Mario Morales, semiconductor analyst at International Data Communications, noted that 64-megabit DRAM prices in the spot market have ranged from close to $11 to $15 while contract prices have been holding at $14 to $15. 16-megabit DRAM, on the other hand, has been selling for around $3, while contract prices have fluctuated from $3 to $3.50. 16-megabit chips are still used widely in PCs.

"We're still seeing 64-megabit price erosion," said Morales. "64-megabit memory will be in mainstream computers in the second half [of 1998]." Computer vendors will in all likelihood begin to devise product plans based around the conversion during the current quarter, he added.

While Giudici's figures would indicate a crossover from 16-megabit to 64-megabit chips should be occurring now, the crossover point will not happen until the fourth quarter, he said. Although the market price for 64-megabit DRAM in the spot market is at the 4X point, the contract price is not there yet, and the contract price is a better indicator of when the conversion will occur. Contract market prices are generally more stable and relate to large volume purchases. Spot market dealers are trading lower quantities of surplus memory.

But while spot prices are often lower and not as accurate a barometer of the current state of the market, these prices often function more as a harbinger of trends.

Morales predicted that price stability could return to the market in 1999, adding the caveat that a number of factors could upset this expectation. Several memory manufacturers are shifting from the 0.35 micron manufacturing process to more advanced 0.30- and 0.25-micron manufacturing processes, for instance. The advances will allow makers to get more memory chips out of each silicon wafer; in turn, that means more and cheaper-to-make memory.

A decline in computer demand could likewise depress memory prices.

Giudici added that the devaluation of Asian currencies will continue to have an effect. The majority of memory manufacturers are based in South Korea and Japan. Lower prices could even prompt some U.S. vendors to raise allegations that foreign vendors are dumping chips, he suggested.

64-megabit DRAM chips sold for $250 in January 1996, but dropped to $90 by December 1996. The chips sold for close to $45 during the middle of 1997, but descended to around $28 on contract prices in November, according to various sources.