What Does RDRAM Really Cost?

SAN FRANCISCO (04/04/2000) - As Rambus Dynamic Random Access Memory slowly makes its way onto PCs, the next-generation memory technology continues to sell for a hefty premium--but just how hefty?

Check with memory retailers, and you'll find that RDRAM costs two to five times the price of the Synchronous DRAM it's intended to replace. But Rambus the company, and one prominent analyst, say PC makers pay a much smaller premium for RDRAM. Is someone playing games with the price?

Visit Kingston Technology Co.'s ValueRAM electronic-commerce site, and the cheapest 128MB RDRAM module you can find is $722. The most expensive 128MB SDRAM module is only $179. The gap has widened in recent months due to SDRAM price reductions, analysts say.

RDRAM-equipped PCs have smaller but still hefty markups, though apples-to-apples comparisons are elusive because RDRAM can't replace SDRAM in a system--they require different motherboard designs.

Compaq says RDRAM adds $300-$400 to a system's cost. Similarly equipped Pentium III-based PCs by Compaq, Dell, Hewlett-Packard, and IBM sell for roughly $300-$600 more when fitted with RDRAM.

Upgrading memory on those systems is equally expensive. Dell, for example, charges $680 to add 128MB of RDRAM to its 1-GHz Dimension XPS B1000r, while HP charges $519 for a similar add-on to its 533-MHz Vectra VL 600. In contrast, 128MB SDRAM upgrades rarely cost more than $250.

Tight Supplies

RDRAM is more difficult and expensive to manufacture than SDRAM, and memory makers like Hyundai, Micron, NEC, Samsung, and Toshiba must pay a license fee to Rambus, the company that developed the technology.

But today's prices are as much a function of tight supplies. "It's on allocation right now," says Liesl Schwoebel, a product manager at Kingston.

That means the few companies making RDRAM must dole out small quantities to many customers.

Only one manufacturer--Samsung--is producing it in volume. NEC and Toshiba recently came on-line, and they and others expect to ramp up production this year.

Schwoebel insists that Kingston also pays extra for RDRAM and isn't trying to "rationalize" the situation by gouging consumers.

A March survey of wholesale prices by Dataquest confirms that claim. According to principal analyst Mark Giudice, 128MB of the fastest type of SDRAM costs $124.50 in the U.S., while 144MB of RDRAM (the nearest comparable size in the survey of memory makers and PC vendors) costs $520.

Why RDRAM Upgrade Costs More

Some large computer manufacturers are probably getting substantially better prices, according to Martin Reynolds, Gartner Group research director. "The real Rambus premium is 30 percent," Reynolds asserts, explaining that some vendors may even get RDRAM in volume for only 15-25 percent more than they pay for SDRAM. Reynolds says he got those figures from "a major PC vendor" and Rambus.

Third-party memory module vendors such as Kingston and Viking Components must charge even more for RDRAM because they don't always get the same volume discounts as PC vendors, says George Iwanyc, senior analyst at Dataquest.

Rambus insists the premium isn't as high as the upgrade quotes suggest. In a statement posted on its Web site, the company points to comparably configured Dell Dimension XPS B733r and T700r systems that differ by only $161, and cites the sub-$1450 HP Vectra VL 600 as early proof of RDRAM's migration into low-cost PCs.

It says single modules are priced high to discourage sales of RDRAM that could meet more urgent demand in new PCs. "Each RIMM module sold as an 'upgrade' module potentially prevents a PC system shipment while demand exceeds supply," Rambus says.

What Samsung Says

No surprise, though: Prices of early RDRAM modules are high primarily because manufacturers of new technologies want to recoup their development costs.

"We spent literally hundreds of millions of dollars developing RDRAM capacity," says Bob Eminian, vice president of marketing at Samsung Semiconductor. Another price hit came from the opportunity cost of converting an assembly line that could have been used to fill SDRAM demand last fall, Eminian says.

The seemingly sky-high prices are about four parts Samsung's price, one part retail markup. "Our Rambus components to [PC makers] are about three to four times the cost of PC 100 [SDRAM] memory," he says.

Supply won't match demand until late 2001, in Eminian's opinion, and prices won't moderate until competitors get in and PC vendors build more systems with RDRAM to remove performance bottlenecks in systems running at 1.5 GHz or higher.

But even then, RDRAM will likely sell for around 35 percent more than comparable SDRAM because of its inherent costs, despite Rambus proponents' claims, Eminian says.

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