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Japanese delay memory plants

Japanese memory chip companies are delaying plans to expand their fabrication plants, responding to the continuing decline of memory prices.

2 min read
Japanese memory companies are delaying plans to expand their fabrication plants, responding to the continuing decline of memory prices.

Hitachi (HIT) and Toshiba will postpone opening new "fabs" for 64-megabit chips because falling memory revenues don't justify the investment costs, according to a report in Japan's Nihon Keizai Shimbun.

Fujitsu and Mitsubishi, meanwhile, may also cut capital spending by 10 to 20 percent in the coming year.

The change in plans comes as a result of the continuing slide in memory pricing. An excess of manufacturing capacity developed in 1995. In turn, this has resulted in a glut of memory, rock-bottom pricing, and lower revenues for manufacturers.

Lower prices, however disastrous for the manufacturers, have been a boon for consumers, who have experienced lower desktop prices as a result of the glut.

64-megabit DRAM chips began the year at $75 before dropping to $57 by the end of the second quarter and $49 at the end of the third quarter. More recently, the chips cost just about $30, according to Dataquest analyst Mark Giudici.

"We expect them to continue to come down over time," Giudici said, predicting 64-megabit DRAMs would be priced around $21 by the end of 1998.

"That's the normal earnings curve of the introductory phase, where you see a pretty steep shift."

64-megabit DRAMs are mostly used in servers and workstations today, but will start popping up in desktop computers next year.

Currently, 16-megabit memory chips are prevalent in the PC industry. 64-megabit chips can pack four times as much data onto a single chip, giving a standard-size memory module four times the capacity. In 1998, new modules containing 64-megabit memory chips will allow PCs that currently come with 16 megabytes (MB) of memory to include 64MB.

Prices in 16-megabit chips have been in a similar slump. 16-megabit chips have dropped from the $12 range in early 1996 to above $7 at the start of 1997. Current prices are as low as $4 a unit in the spot, or surplus, market.

To add to manufacturers' woes, a South Korean government study recently concluded that aggressive sales of 16-megabit chips--currently underway as manufacturers move to liquidate supply--could detract from sales of 64-megabit memory chips, and thus lead to a glut in the higher-capacity chip next year.