Dell Computer Corp. recently attributed a disappointing fourth quarter partly to a shortage of Intel microprocessors, and at least two sources now say that the processor shortfall also helped create an inventory bubble of DRAM, which is hurting prices. "If that bottleneck didn't exist, [DRAM prices] would be a lot better," said Mario Martinez, director of memory marketing for Hyundai Electronics America (San Jose, Calif.).

"Trying to tie Pentium III availability to SDRAM pricing is quite a stretch," retorted a spokesman for Intel (Santa Clara, Calif.). "DRAMs have their own pricing structures, and pricing is always fluctuating."

Satoru Oyama, senior semiconductor analyst for ABN Amro Securities Japan Ltd. (Tokyo), blamed falling DRAM prices on seasonal factors and on Intel's problems keeping up with demand for microprocessors. He said the price bottom might not be reached until April or May.

Prices of 64-Mbit synchronous DRAMs were hitting the low-to-mid-$6 range in the spot market this week, according to a spokeswoman at Micron Technology Inc. (Boise, Idaho). Those parts were fetching nearly $9 in January, said analyst Jim Handy of Dataquest Inc. (San Jose). Contract prices were generally in the $8 range, several sources said.

Packaging problems?

Hyundai's Martinez said he heard from analysts that Intel has been unable to secure adequate supplies of the flip-chip pin grid array (FCPGA) package that it began using last October with the Pentium III, crimping deliveries of the processor. "Strategic accounts are getting the bulk of the product, and white-box manufacturers are being penalized," he said.

The Intel spokesman conceded that deliveries of the FCPGA package haven't always been steady in recent months, but said Intel has recently begun catching up with the very high demand for Pentium III devices.

The Pentium III bottleneck was only one of several factors blamed for the recent DRAM dive. Unexpectedly high yields at several large suppliers have increased supplies of the chips, said Bob Eminian, vice president of marketing for Samsung Semiconductor (San Jose). Suppliers have been slow to shift capacity into alternate memory types, including Rambus, double-data-rate and PC-133, creating an oversupply of PC-100 parts, Dataquest's Handy said.

But DRAM prices could get a lift in the second half of the year due to seasonal high demand and the introduction of Windows 2000, which should boost the minimum system memory requirement to 128 Mbytes, said Oyama of ABN Amro.

NEC Corp. is looking for ways to increase capacity as it prepares to merge its DRAM operations with Hitachi's DRAM division when the new fiscal year begins April 1. The two companies, both of which have lost much of their DRAM market share over the last several years, hope to capture 20 percent of the market.

As prices for mainstay 64-Mbit devices fall, NEC will shift more production capacity to 128-Mbit devices, an NEC spokesman said. By March, NEC will reach a monthly output of 5 million 128-Mbit devices and 10 million 64-Mbit devices. The company is also preparing to shift its higher-density parts from 0.18-micron design rules to 0.15 micron by the second half.

"There's good demand for chips and more PCs out there," the NEC spokesman said. "For large-volume customers there's a lower demand for 64 Mbit and higher demand for 128, and that's causing people across the marketplace to shift their product to the after-sales market."

NEC also has a plan to leverage its position as one of three main suppliers of higher-priced 144-Mbit Rambus DRAMs. NEC expects Rambus will make up 5 percent of DRAM sales in the total market this year, but the company wants Rambus to account for about 10 percent of its own sales by year's end, the spokesman said.

Risky business

The shift to higher-density devices has had mixed results for Japanese companies. Last year, Toshiba shifted the majority of its production capacity to 128-Mbit devices, only to later suffer a loss of revenue when prices dropped faster than the company predicted.

Hitachi, which has lost significant revenue and market share in DRAMs in recent years because of delays in ramping up its 64-Mbit product line, has fared better since skipping the 128-Mbit generation and moving early to produce 256-Mbit devices. After deciding to focus on the high end of the market, the company's DRAM operation is again making a profit, "but not that much," said Yukari Yamada, a memory IC analyst with Dataquest in Tokyo.

If demand for 128-Mbit devices continues and DRAM makers rein in 64-Mbit output, a price crossover could occur by the second quarter, where the price of one 128-Mbit DRAM is twice that of one 64-Mbit chip, observers said.

Mitsubishi Electric Corp. is holding a cap on memory production for the near future, a spokesman said. The company makes 6 million 64-Mbit, 2 million 128-Mbit and 100,000 256-Mbit parts a month.

Measured in 64-Mbit units, Mitsubishi's total output is 10.4 million pieces per month. It plans to decrease 64-Mbit production and boost 128- and 256-Mbit output, but the total bit output will stay constant.