DRAM market pauses in price drop, analyst says

DRAM prices, which have been falling of late, have levelled out -- a welcome development for manufacturers, though the pause is expected to be temporary

Struggling memory chip vendors may see a ray of hope in the near future as prices for DRAM chips stopped their long slide during the first half of July, according to a report released Tuesday.

However, that pause is likely to be brief as DRAM suppliers still have too much inventory in their warehouses, said the report from iSuppli. As vendors like Samsung and Hynix Semiconductor seek extra revenue by selling off those inventories, prices could drop again, said iSuppli analyst Nam Hyung Kim.

Therefore, Kim upgraded his rating of the short-term DRAM market only from "negative" to "neutral," saying he is not yet ready to declare a recovery in that sector.

Falling DRAM prices help keep prices low for consumer electronics like PCs, MP3 music players and digital cameras. But it puts big pressure on chip makers to find new revenue. For example, in April Samsung blamed tumbling DRAM prices for helping to push its net profit down 15 percent in the first quarter of 2007, compared to the same period last year.

In recent years, some vendors have broken the law in that effort, leading to price-fixing convictions by the U.S. Department of Justice against Samsung and Hynix, as well as their competitors Infineon Technologies, Elpida Memory, and Mitsubishi Electric.

Price collusion by DRAM vendors can also harm business computer buyers, according to a lawsuit filed in May against Hynix by Sun. Sun claims the South Korean company inflated prices for its DRAM chips, leading to artificially high prices for Sun servers and storage systems.

Some chip vendors are trying to improve their profits by reducing their DRAM production in favor of NAND flash, the memory technology used in popular items like Apple's iPod music players and iPhone smartphone.

That transition will help to keep the DRAM market strong in the third quarter of 2007 by avoiding a surplus, Kim said. But even the NAND market will begin to droop in the second half of 2007, as memory manufacturers rush into that sector and force another price decline, he predicted.

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