The DRAM (dynamic random access memory) chip market will be worth 55.5 percent less this year than last largely because of falling chip prices, according to a study published Thursday by Dataquest.
Worldwide DRAM revenue is projected to fall from US$31.5 billion in 2000 to $14 billion in 2001, according to the study's author, Andrew Norwood, a senior analyst for the U.K. division of Dataquest, a unit of Gartner.
"It all comes down to pricing and this year DRAM prices have collapsed," Norwood said. DRAM pricing has declined by about 80 percent in the past 12 months, he added.
DRAM chips are used as the main memory inside personal computers and their prices have been falling since the middle of last year, when PC sales started slowing down and inventories began to build up at the chip makers.
"The industry always suffers boom and busts, with two types of busts: overcapacity and lack of demand. While the DRAM market has been experiencing difficulties with overcapacity for the last few years, this year the problem has been compounded with a serious lack of demand in the PC market, which is significant since the PC market accounts for 65 percent of the DRAM market, Norwood said.
All of the major players in the market such as LG Electronics, Hynix Semiconductor (formerly Hyundai Electronics Industries), Micron Technology, Samsung Electronics, NEC and Rambus have been reporting significantly lower earnings for the year.
In February, the spot price for benchmark 128M-bit DRAM chips, was approximately $4.50, according to memory chip market data provider Independent Commodity Information Services - London Oil Reports (ICIS-LOR). This week, the spot price for the 128M-bit DRAM chips dipped below the $2 mark, with contract pricing falling below the cost of production for most manufactures to under $3 per chip, Norwood said.
"In order to recover, we would have to see cutbacks by the major players. And since the top five DRAM producers have over 76 percent of the market, it won't make a difference unless the big guys cut back production," Norwood said.
"The problem is that they are all afraid of losing market share and no one wants to blink first," Norwood said.
Some DRAM chip makers are hoping that the launch of Microsoft Corp.'s Windows XP operating system, slated for Oct. 25, will give a boost to flagging sales. But as Norwood pointed out, that had also been the hope with the releases of Windows 95, 98 and 2000, and such gains never materialized.
Early in June, Ilung Kim, vice president of memory marketing at South Korean memory chip maker Samsung said that sales of Windows XP will help boost demand for memory chips because computers running the new operating system will require far more memory than PCs running existing flavors of Windows. "It's a totally different animal from Windows 95," Kim said at the Computex exhibition in Taipei.
But indications from Microsoft and PC manufacturers such as Compaq are that Windows XP will run just fine with 128MB of memory, the same amount of memory used to run Windows 2000 Professional or Windows Millennium Edition.
"In order for Windows XP to make a difference to the DRAM market, you'd have to see everyone tripling their DRAM and that doesn't look like it's going to happen," Norwood said.
Norwood expects DRAM companies to continue making losses into 2002 when he predicts that the companies will finally be forced to cut back on production and lower growth. "Next year should be a transition year and by 2003, the market should see the strongest DRAM market growth since the early 1990s," Norwood said.
Meanwhile, those looking to buy extra memory for their personal computers can celebrate, Norwood points out in the study. An end user adding an extra 128MB of memory will have to pay less than $20 for a memory module, when the same memory module last year would have cost as much as $120, Norwood said.