Although DDR prices have been declining steadily from a peak n November, the latest sharp drop was welcomed by OEM buyers caught in their own competitive product pricing squeeze.

Contract prices for 256Mbit DDR chips last week ranged from a low of $3.65 to a high of $4.25, while 128Mbit DDR ranged from $1.75 to $2.25, according to online broker DRAMExchange.com. In both cases, that's about half what the chips were fetching three months earlier.

The price collapse also for the first time drove DDR chips below the average selling price of single-data-rate SDRAM. Contract prices for 256Mbit SDR SDRAM swung between $4.20 and $5, with 128Mbit chips selling for $2.50 to $3--a 50% increase since November, according to DRAMExchange.com. The broker attributed the change to DRAM makers shifting production lines to DDR, which created spot shortages of the older memory.

In the spot market, DDR chips have fallen in price by 32% in the past month. Spot prices for 256Mbit chips sunk to $2.89--well below the contract level--although 128Mbit DDR is hovering just outside the contract range at $1.67, DRAMExchange.com said.

Many observers expect DDR prices to continue falling in the spot market as vendors try to unload excess inventory.

"Lots of inventory is coming into the market, causing prices to drop very rapidly," said Ken Hurley, president of Nanya Technology Corp. USA, San Jose. "That will affect contract prices, which decline further as the spot market puts more pressure on negotiations."

Analysts and chipmakers agreed that the latest OEM price bonanza is the result of a double-whammy for suppliers: the rapid production ramp of DDR and traditionally slow first-quarter demand.

The state of oversupply was inevitable given that so many DRAM makers moved to DDR production at the same time, according to Mueez Deen, director of DRAM marketing at Samsung Semiconductor Inc., San Jose. "This came at the same time that customer demand fell off in the normally slow first quarter," he said.

Joseph Osha, an analyst at Merrill Lynch Research, New York, agreed. "With PC demand seasonally slow, DRAM manufacturers are now clearly overproducing DDR parts," he said. "Not surprisingly, there is more DDR inventory in the channel than SDR SDRAM inventory, with overall industry inventory still in the four-week range."

Even with the oversupply situation, DRAM suppliers aren't cutting back production, according to Paul Zecher, memory analyst at independent distributor Converge Inc., Peabody, Mass.

"It doesn't look as if the manufacturers have any intention of reducing output," Zecher said, indicating that bargain-basement prices for DDR could continue for some time.

The price swoon could ease, however, if PC manufacturers follow their usual pattern of adding cheap memory content to their boxes. Farhad Tabrizi, vice president of worldwide marketing at Hynix Semiconductor Inc., San Jose, said that previous cycles of DRAM oversupply ended when customers took advantage of low-cost memory to increase PC memory size.

Nanya's Hurley said the price of DDR chips also might stabilize as production of higher-speed DDR400 chips begins to ramp up.

"There could be some capacity shift to DDR400," he said. "It depends on how quickly manufacturers can ramp up DDR400 production. Everybody is sampling devices now, but some may be later than others moving into volume production."