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Memory makers drive costs lower

Memory prices continue to fall, but so do manufacturing costs, at least for some Taiwanese manufacturers.

Taiwanese manufacturers have vowed to drive their manufacturing costs for 16-megabit memory chips below $3 a chip, a move designed to keep costs below memory's market price, which has hit $4 and less.

TI-Acer and Vanguard International Semiconductor said they will use new manufacturing expertise to keep their production costs for 16-megabit dynamic RAM (DRAM) memory chips under $3 per unit, according to a report in Taiwan's Commercial Times that appeared in the online edition of Nikkei Business Publications.

The announcement is the latest event in 1997's year-long slide in the memory market. Overcapacity has driven the price of 16- and 64-megabit chips down dramatically over the past 12 months. Prices for 16-megabit DRAM chips have fallen to as low as $4 a unit, said Bruce Bonner, an analyst at Dataquest. The Commercial Times reported that some spot market vendors, which sell surplus memory, are selling chips for $3.

Complicating the surplus of chips, Micron, one of the few U.S. manufacturers, has improved its manufacturing to the point where its chips can be made for $2.50 each. Other manufacturer's costs remain higher. Some analysts have estimated that manufacturing costs can be as a high as $5.50 to $6 at certain plants.

"They [Micron] have become a market share factor in 16-megabit DRAM where they weren't before," Bonner said.

Although descending prices have driven a number of manufacturers to suspend or completely abandon the memory market, the Taiwanese manufacturers earlier this year vowed to ramp up memory production.

A TI-Acer executive confirmed that Texas Instruments has developed advanced process technology for 16-megabit DRAM manufacturing, according to the Commercial Times. This technology will propel production in 1998, as half of the manufacturing processes with this new technology will be devoted to making 16-megabit DRAM and half to 64-megabit DRAM.

This year, TI-Acer is experiencing the worst performance in its seven years of operations. The company has twice reduced its estimates. With prices of 16-megabit DRAMs falling, the company expects to report $2.67 billion (Taiwanese dollars) in pretax losses in 1997, the Commercial Times said.

Unit prices of 16-megabit chips dropped from the $12 range in early 1996 to above $7 at the start of 1997. In September, the chips were selling for between $5 and $6 in the spot market and for closer to $7 in the contract market. Most manufacturers buy their chips in volume in the contract market. Contract market prices, however, fall in league with prices in the spot market. Spot sellers generally deal in surplus or second-tier products.

The prices quoted are for prices in volume. Users do not see these price cuts directly, but do see the results in the price of memory modules.

Unlike memory chips, which are priced by megabit, modules are priced by megabyte, which is eight megabits.