Are memory prices stabilizing?

Memory chip prices are climbing after having dropped in May and June, a sign that the market may be stabilizing and further evidence that the "free" PC phenomenon may be contributing to PC growth.

Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
Brooke Crothers
4 min read
Memory chip prices are climbing in August after having dropped in May and June, a sign the market may be stabilizing after a brief downturn and further evidence that the "free" PC phenomenon may be contributing to PC growth.

The market for the 64-megabit variety of dynamic random access memory (DRAM) rose 10 percent from July, according to a report in the Nihon Keizai Shimbun, a major Japanese business daily.

The 64-megabit chip is the most widely used memory chip and succeeds the 16-megabit version for use in the main memory of personal computers.

Memory prices have been on a roller coaster over the last 10 months. After a number of years of price free-fall, Micron Technology, back in March, reported a jump in earnings for the first time in a year, partly due to a rise in prices.

Then, prices plunged again on the spot market. At that time, 64-megabit DRAM chips fell to a record low. The decline wiped out hopes for an immediate recovery but also put a crimp in the plans of memory makers to shift to the more expensive Rambus-style memory. With the drop, memory makers put off plans to deploy Rambus technology, according to various sources.

But this price decline may have been more of an aberration than a trend. Analysts now point to a surge in sales of "free" PCs and pent-up demand for computers in Asia, which is driving demand of memory chips. Another contributing factor is that some memory makers have been switching to the higher capacity 128-megabit version, which has slowed shipments of the popular 64-megabit chip.

The arrival of the Windows 2000 operating system later this year will also spur memory sales. The new Microsoft OS is a memory hog, executives at memory and PC companies have said, which will require PC makers to beef up systems. Still, anything can happen, as the last three years have proven. Several memory factories are currently idle.

The Japanese report said that the August delivery price for 64 megabit chips was about 10 percent higher than the previous month for the first time in seven months. The spot price, which is a strong indicator of demand, increased to as much as 7.30 dollars, about 22 percent higher than the end of July, the newspaper report said.

IC Insights, a semiconductor research house, is forecasting a 33 percent rise in DRAM shipments this year, a dramatic shift from last year when the market sank 29 percent.

"[Factories] in Taiwan are sold out or in the one- to two-week inventory range," said Brian Matas, a vice president at IC Insights. He also believes that Micron, one of the largest makers of 64-megabit chips, is approaching a two week inventory level, down from a previous four-week status.

The free PC boom is also adding to demand. "The PC is very much a consumer product now. Look at all the free PCs that are being sold," said Danny Lam, director at Fisher-Holstein, a consultancy. Indeed, the free PC trend seems to be an anomaly and boosting demand for PCs in an entirely new market segment.

Companies such as Gobi, DirectWeb, Microcenter, and a host of others have been supplying free PCs for buyers who sign up for Internet service. More importantly, major manufacturers have dropped prices on their PCs and made deals even sweeter by bundling in Internet access and rebates.

Lam also said that PC inventory in Asia is building and cited a rise in shipments of chipsets, the companion chips to the main processor in a PC.

This is also buttressed by reports from International Data (IDC) which have cited a rebound in Asian PC sales.

But ultimately only time will tell if this is a real trend or not. Upstart Taiwanese makers and Infineon Technologies have been boosting supply to the market, which can drive down prices in a market with tepid demand for PCs. Infineon is the former semiconductor group of Siemens AG.

Matas expects memory prices to rise in August and September and then "slide back down" after PC makers finish building up for the year-end holiday season. "[PC makers] are buying now to build systems for Christmas but then they will back off," he said.

Typically, memory chipmakers pare back production and, as a result, prices eventually creep back up as new high-end PCs are introduced with increased memory capacity to handle more demanding software and tasks such as multimedia. But during the price decline in the spring additional worldwide capacity stepped up to meet demand.