Want CNET to notify you of price drops and the latest stories?

A DRAM renaissance?

Market researcher Gartner forecasts double-digit revenue growth for manufacturers of dynamic RAM in both the third quarter and all of 2003.

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
3 min read
The DRAM industry may be on the road to recovery, market researcher Garter said Tuesday.

Manufacturers of DRAM, or dynamic random access memory, have begun raising prices due to a combination of lower inventories and increased optimism sparked by an increase in PC sales. PCs use DRAM to store data.

Memory prices on the spot market and also in long-term contracts began creeping up during the latter half of the second quarter. Because of these increases, Gartner predicts that the worldwide DRAM market will post revenue of $5.1 billion for the third quarter. The figure would represent a 38 percent increase over same period in 2002.

The DRAM market saw worldwide revenue increase by just a fraction year over year to $3.72 billion during the second quarter of 2003, Gartner said last week.

Gartner now forecasts that revenue for the industry will reach $18.9 billion in 2003, a 22 percent increase over 2002.

Rising DRAM prices could boost the fortunes of Samsung, Micron Technology, Infineon, Hynix and others. The manufacturers, which cut prices to the bone during the PC market downturn, have been hoping for a turnaround for more than two years. DRAM price declines have led to a major consolidation in the industry as companies got out of the market or tried to stem huge losses.

A recovery in DRAM, however, would put pressure on PC manufacturers. To maintain profit margins, PC makers may be forced to change how they configure their newest PC models to adjust for more expensive DRAM, analysts have said.

If the cost for DRAM exceeds a certain price--usually 8 percent to 10 percent of the bill of materials for a PC--manufacturers may be forced to cut back on the memory allotments offered in new models or to shift other features to compensate. Most manufactures aim their models at a certain price, such as $599 for a desktop. Switching to a smaller hard drive, for example, would offset higher DRAM costs and allow a manufacturer to meet its price target.

While rising DRAM prices are a major concern, PC makers such as Dell have pointed out that, so far, overall prices for PC components have continued to decline on average. Dell said last week that component price declines, which had reached 1 percent or 2 percent per week in recent quarters, were likely to continue, but could slow to as little as half a percent per week during its third fiscal quarter, which closes in November.

Gartner did note that while the price increases are feeding a tentative DRAM recovery, memory manufacturers still face potential pitfalls.

For one thing, PC demand could sink again, sapping the strength of the recovery. Or DRAM makers--many of which slowed production or shifted to other types of memory during the downturn--could increase DRAM production too quickly, creating an oversupply that torpedoes prices, Gartner said.

"The expected balance between supply and demand could easily swing into oversupply if PC demand is not as strong as expected," Andrew Norwood, an analyst with Gartner, said in a statement. "Likewise, if DRAM manufacturers increase production ahead of plan, owing to improving market conditions, the market could be pushed to oversupply earlier than predicted."

While DRAM prices fluctuated over the past couple of years, Gartner forecasts that the average price for a DRAM chip will reach $5.55 during the third quarter. That would mark a 20.5 percent increase over $4.61 per chip during the previous quarter. Individual DRAM chips are packaged into modules of 128MB, 256MB or more for PCs.