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DRAM doldrums ending

The price comeback is fueled by plant cutbacks and a steady increase in demand for PCs in the U.S.

The plunge in the price of the latest generation of memory chips will soon run its course, an increasing number of market observers say, according to the Nihon Keizai Shimbun, Japan's largest business daily.

Production cuts of 64-megabit DRAM memory chips by South Korean chipmakers and a steady increase in demand for personal computers in the U.S. have pushed the spot price upward for these chips, as prices for June shipments fell compared to the previous month.

Negotiations covering July shipments will likely end with agreement on the same price as in June, the newspaper reported. The price for 64-megabit DRAM chips slid around 5 percent to 1,000-1,100 yen in June, or about $6.80 to $7.50.

The price comeback is also fueled by plant cutbacks, the proliferation of faster technology such as the 100-MHz system bus--a data conduit between the processor and memory--improved manufacturing technology and a big increase in the amount of memory PC vendors are putting into their systems.

And memory isn't the only market that appears to be coming out of the doldrums. The massive inventory of PCs, which drove prices down in the first half of the year, is finally clearing up, say analysts. Disk drive makers have also recently reported that their inventory problems have improved recently.

The uptick in prices for 64-megabit DRAM began in June, according to Kipp Bedard, vice president of corporate affairs at Micron Technologies. Prices for 64-megabit DRAM bottomed out at between $7.50 to $8.10.

An increased use of memory is one of the more significant contributors to the recent rise in prices, he said. Cheap memory has prompted computer vendors and device makers to load up their machines with as much DRAM as possible. Projections from earlier in the year predicted that, on average, computers would contain 55MB of DRAM. Increased demand for Windows 98 and Windows NT has fueled memory expansion as well, but not as much as price, he said.

Instead, the average computer now contains 64MB of memory and will contain around 83MB on average by the end of the year. More megabytes per machines means more megabit chips. As a result, Micron's memory inventory has shrunk from four weeks in May to a relatively manageable level today. By early October, 64-megabit DRAM will become the majority DRAM chip used by PC vendors, ousting the current 16-megabit standard.

A second major contributor has been the 100-MHz system bus, which is featured with Intel Pentium II chips running at 350-MHz and above as well as certain K6 chips from AMD. The 100-MHz bus is optimized to work with a different type of DRAM than the memory made for the older 66-MHz system bus. A 64-megabit DRAM chip compatible with the 100-MHz memory sells for $1 to $1.25 more than its 66-MHz counterpart.

Manufacturing also appears to be working in Micron's favor, he added. Micron has been shifting to the .25 and .21-micron manufacturing processes, which allows the company to produce more chips per silicon wafer without increasing cost.

Japanese and Korean memory manufacturers, meanwhile, have not been keeping up with the process shrinks. Instead, they have been shutting factories to soak up excess inventory. Legal action against Korean manufacturers could also help prices in the future. The U.S. Department of Commerce is slated to issue its final decision on charges that two Korean manufacturers "dumped" chips for below cost by September 8.

Manufacturing capacity also remains a problem. Siemens shut down a state-of-the-art DRAM factory last month. While this is a start, more of these fabs will have to be shut down.

Still, analysts and even memory executives caution that a sustained recovery may not come for a while and will likely take more plant shutdowns. Although that means more lean times for memory manufacturers, consumers can expect to enjoy the luxury of lots of memory for the near future.