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DRAM chips cut back to stop price drop

Major memory chip makers are cutting DRAM production to stop a freefall in prices.

A host of major memory chip manufacturers are scaling back production plans for Dynamic RAM chips, the main memory used in all personal computers, in the hopes of stopping a precipitous drop in prices that has halved the cost of upgrading PC memory.

NEC will scale back production of 16-megabit chips from 11 million units a month to 9 million, according to the Nihon Keizai Shimbun, Japan's largest economic daily. This sharp reversal of fortune essentially dashes the company's earlier plans to crank up production to 18 million chips a month by December of this year.

NEC is Japan's largest chip maker and one of the world's largest memory chip manufacturers.

What NEC hopes to do is to halt the drop in memory prices by decreasing production. The stratagem--which Samsung and Hitachi are also adopting--may work, but the consumer is the winner in the meantime.

"[Prices have] hit rock bottom. They really can't go any lower," said a spokesman at L.A. Trade, a memory reseller in Torrance, California. Prices for 16MB of DRAM four months ago hovered between $300 and $400, but this amount of memory now sells for as little as $145, said the spokesman.

Other resellers believe that these low prices are here for good. "Prices might fluctuate a bit, but they'll never go back [up] to where they were," said an executive at an Anaheim, California-based memory reseller.

"[Customers] are delighted at the prices and are telling their friends, who are then calling in to buy more memory," said a salesman at the same company.

And in more good news for the PC-buying public, some PC vendors are also passing on memory price reductions. A Hewlett-Packard spokesman said that memory prices have "contributed" to its decision to reduce prices on its desktop PCs.

Currently, the 16-megabit DRAM chips themselves, which are sold to distributors and PC manufacturers, trade at just over $15, down from $45 early this year. And supply is still outstripping demand by about 15 percent, according to estimates.

In the past, NEC, Hitachi, and the other Japanese manufacturers were used to coordinating their production plans to largely control pricing. But with large Korean manufacturers now in the game, such monopoly has become more difficult.

And now fledgling Taiwanese memory manufacturing operations are hoping ramp up to large-scale production and intensify price competition even more. Some observers believe that this is pushing the Japanese and Korean manufacturers to cooperate to drive down prices in an effort to stop the Taiwanese from gaining a foothold in their market.