DRAM price crashes through US$2

The contract price of the most widely used DRAM chips, 512M bit, 667MHz DDR2 (double data rate, second generation), slid below US$2 for the first time in the first half of May. The chips dropped 8.8 percent from mid-April to $1.94 per chip, according to DRAMeXchange Technology Inc., a Taiwanese company that runs an online DRAM market.

It's great news for users. Falling DRAM rates can help offset recent increases in prices for LCD (liquid crystal display) panels, and keep PC prices in check. Users wanting to boost their system speed can also add more DRAM at a low cost. These prices aren't likely to last longer than the next few months. At $1.94 each, the chips are well below the $2.50-$3.00 cost of production for chip makers, and they'll likely shift their production strategies in order to reverse the decline. The second half of the year is also the strongest for PC sales, another factor that could stop the current downtrend.

DRAMeXchange said the DRAM market appears to be weaker than expected in May and June, and many companies in the supply chain, including module makers and PC vendors, have already built up inventories. Prices won't rebound until these inventories are worked down.

The fall below $2 was also significant because of its relative ease, noted Gartner Inc. There was less resistance at that psychologically important level than expected, the industry researcher said.

Even though chip makers are producing DRAM at a loss, prices may not rebound quickly. The companies have to continue selling the chips to bring in cash so they can pay for their expensive DRAM factories. They could try shifting some production to other products, such as NAND flash memory and image sensors, where prices are firmer, but it takes months to tweak production lines for such a change. They could miss an uptick in the DRAM market.

Around three-fourths of all DRAM chips are bought and sold by contracts between DRAM makers and major PC vendors such as Dell Inc. Prices are renegotiated twice per month. The remaining one-fourth is sold on open spot markets, like commodities such as oil and gold.

Contract prices of the chips have fallen 67 percent since the start of the year, when they were fetching $5.95 each. Although many analysts watch DRAM prices as an indication PC shipments might be slowing down, that's not likely the case this time. DRAMeXchange says the decline was caused by chip makers switching some production lines to DRAM from NAND flash memory, which had seen prices fall for nearly six months before recently stabilizing. The changeover has caused an oversupply in DRAM, while the glut in NAND flash memory has eased. There does not appear to be any problem with the PC market, analysts said.