In a sign that PC makers may have finished gorging themselves on low-cost main memory, a precipitous drop in DRAM prices during the past several weeks has apparently done little to spark OEM interest.
Despite record low prices for 64-Mbit PC100 SDRAM chips, the market is not responding with a commensurate increase in PC main-memory consumption, according to several suppliers. And while many in the industry still believe that DRAM bit demand ultimately will outstrip bit growth this year, the satiated market appears far from equilibrium.
"I think the first half of 1999 will go down in history as similar to the first half of 1998, when we saw a 60% decline in ASPs compared to the year before," said Avo Kanadjian, vice president of memory marketing at Samsung Semiconductor Inc., San Jose.
As for mainstay 100-MHz, 64-Mbit SDRAM, contract prices already have plummeted at least 30% since early April and are bouncing around in the $5.50-to-$6.50 range, according to data collected by Morgan Stanley Dean Witter & Co., San Francisco. The drop is one of the steepest declines since oversupply threw DRAM tags into a tailspin more than three years ago, and prices are expected to fall further, industry reports indicate.
"It's really puzzling to see what's happened to prices, given the generally favorable state of the industry," said John Lazlo, an analyst for Paine Webber Group Inc. in San Francis-co. "These [DRAM] companies have collectively lost over $15 billion. It makes you wonder how much more of a loss they can withstand."
Even as it ushers in more attractive prices for PC makers, the latest market movement has apparently spurred no corresponding increase in consumption, observers note. Instead, OEMs are holding the DRAM content of their PCs relatively steady, at about 55 Mbytes per unit, according to Dataquest Inc., which challenged the correlation between price and unit demand.
"The increase in consumption hasn't responded to the decline in prices as strongly as some people would have you believe," said Jim Handy, an analyst for the San Jose research firm. "We did a study that looked at price elasticity in the DRAM market, and the [argument] got lost in the noise."
While many midpriced systems have slowed their DRAM consumption, PC makers at the low end of the market are actually cutting back on DRAM content, pulling in average per-unit levels to 32 Mbytes, executives from San Jose-based Fujitsu Microelectronics Inc. observed during a recent press briefing.
"A lot of the products that have been built and shipped recently are Celeron
[-class] PCs, and you're not going to have 96 megs of memory in a Celeron type of product," said Paul Meyers, memory-commodity manager at independent distributor American IC Exchange, Aliso Viejo, Calif."
With market leaders Hyundai, Micron, and Samsung all pouring on new levels of production, the hoped-for recovery in the DRAM marketplace will likely be deferred until late 1999 at the earliest, several research firms now say.
What's more, after holding the line on 64-Mbit DRAM production, NEC Corp. last week confirmed that it would boost output 150%, to the equivalent of 30 million 64-Mbit units per month, by the middle of next year, adding fuel to the oversupply situation.
The current activity in the DRAM market appears to center around 8-Mbit ?? 8 PC100 SDRAM chips, which are used in one of the more popular memory-module configurations, according to Samsung's Kanadjian. The oversupply of this one part is even masking instances of shortages for other SDRAMs, such as devices organized as 16-Mbit ?? 4 and 4-Mbit ?? 16, he said.
"It's become a very difficult situation, because it's created a very large disparity between 8-meg ?? 8 synchronous and every other flavor of 64-meg," Kanadjian said. "As soon as the 8-meg ?? 8 inventories that are out there are consumed, prices will go back up and close the gap with the other product groups."
Seasonally soft PC demand has also contributed to the recent spate of price drops. The delay of Intel Corp.'s Camino chipset and Direct Rambus DRAM may be crimping prices further, according to observers. Direct RDRAM, for which volume production was to have begun in the second quarter, was expected to absorb some capacity, because chips based on the high-speed interface are larger than conventional SDRAM devices.
Still, bit demand will increase this year to 4.2 billion 64-Mbit equivalents, a 78% rise, according to Mark Ellsberry, vice president of marketing for the semiconductor division of Hyundai Electronics America, San Jose. By comparison, Ellsberry said, the industry will increase bit growth by only 70%, a recipe for shortage later this year.
With several conditions attached, analyst Sherry Garber at Phoenix-based Semico Research Corp. agreed, saying DRAM prices should hit bottom in June and begin rising again in the second half of the year.
"Based on the Camino coming out on time, Rambus taking a good chunk of capacity, and PC demand showing some historically seasonal patterns, we still think we'll end up with a growth year," she said.
With inventories continuing to rise across the market, Kanadjian called on the industry to exercise greater control over its production output. But he stopped short of committing Samsung to a manufacturing slowdown, an action the company took last year in a modestly successful effort to rally DRAM prices.
Jack Robertson contributed to this story.