October 1999 Industry Update

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DRAM Update

In August, prices for 64Mb DRAM chips essentially doubled from about $7 to almost $15, causing module prices to rise accordingly. The reasons for this have been documented here and elsewhere as being due to reduced production and increased demand, as well as some panic hoarding. Though many have continued to speculate that Intel is behind the price rise by forcing manufacturers to switch to DRDRAM parts, this is absolutely untrue.

A recent conversation with a Samsung representative revealed that the total production devoted by them to Rambus parts was about 5% of their capacity for DRAM – one full production line. Micron has admitted to devoting basically *no* capacity to Rambus production, because they are not convinced that it is cost effective at this time due to limited demand and high costs (same reasons that Athlon boards have not been appearing in droves, coincidentally). While other manufacturers have devoted a small percentage of their production to Rambus parts, Samsung indicated that they expected to own 95% of the market with their single production line.

When the Taiwan earthquake hit, many brokers decided that it was an opportune time to drive up prices. For no other reason than pure opportunism, prices went from about $15 per chip to over $20 for a short period of time. There has been much speculation that the memory manufacturers were the one driving prices, but it has been primarily brokers and manufacturers of peripheral components who made out. When the prices began to rise, manufacturers of devices that require on-board memory (video cards, for example) began to stock up on memory chips, which they then sold for premium prices shortly after the earthquake

It is important to note that the prices quoted are ‘spot’ prices, not contract prices. The companies that require a steady supply of chips in large quantities, such as Dell, Gateway and others will generally enter into a long-term contract with memory manufacturers at a set price. This allows both parties to know their costs ahead of time and plan accordingly. Samsung sells up to 95% of their parts in this manner, while Micron and Hyundai-LGS sell 80% or more of their parts via contracts. These three manufacturers make up over 60% of the total DRAM market. During the time that the spot prices were rising so dramatically, contract prices remained a somewhere between $6 and $7.50 per chip, so that even the doubling of prices on the spot market can not really be considered a major windfall for the manufacturers.

The most recent reports have indicated that demand has continued to be high for DRAM parts, with production unable to keep pace. As a result, purchasers have been put on allocation and some manufacturers have even reported turning away customers due to lack of parts. Contract prices have gone up to as much as $10 per chip, which will likely be reflected in higher system prices or smaller amounts of memory installed in them. This situation is expected to last for several more months, at least, with some reports indicating it could continue through all of the year 2000.

One positive note is that the higher prices have slowed demand from Tier 2 purchasers (3rd party module manufacturers), causing spot prices to drop down below $15 for the first time in over a month. This should allow module prices to slowly drop back to more reasonable levels, however they likely will not get back to the extremely low levels seen during the summer months for quite some time

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