DRAM chip prices may bottom out in the second quarter but remain down for a year or more, analysts said, since a glut in the chips shows no signs of abating.
Sluggish DRAM prices are good for people interested in buying a new PC or adding memory to their laptop or desktop. PC vendors such as Dell and Acer often add more DRAM to new PCs when chip prices are low, and users can beef up an older PC by installing more DRAM on their own.
The current DRAM downturn will likely last more than a year and possibly two, said Simon Woo, memory chip analyst at Merrill Lynch, at a conference in Taipei on Tuesday.
"It's longer than expected," he said, comparing it to the DRAM industry crunch of 1997-1998, which lasted nearly two years.
The current glut started around the middle of last year, but prices fell in earnest in the third quarter. The spot price of 1Gb DDR2 (double data rate, second generation) chips that run at 667MHz fell to $1.92 on Wednesday, according to DRAMeXchange Technology, which operates a clearinghouse for the chips. Prices of the chips hit their third-quarter high of $6.25 each on July 12 of last year. The current price marks a decline of 69 percent since the third-quarter high.
DRAM makers caused the current glut by building too many new factories in anticipation of strong DRAM demand for PCs armed with Microsoft's Vista OS. The OS requires 1GB of DRAM per PC to run well, compared to just 128MB for Windows XP.
Vista didn't take off quite as DRAM makers had hoped, leaving the market awash in excess chips.
Huge price declines in the DRAM market caused Gartner to pare its global chip revenue growth forecasts for this year to just 3.4 percent, from a previous estimate of 6.2 percent. DRAM will fare much worse than the overall chip market, with revenue forecast to drop 15 percent this year to $54.9 billion, from $58.1 billion last year, the market researcher said.
Most analysts believe prices will bottom out in the second quarter because that's when PC demand is seasonally weakest. Most DRAM goes into PCs.
"We expect DRAM prices to fall another 10 percent in the second quarter of 2008 as PC DRAM content growth slows and inventory rebuilding ends," said Matt Evans, memory chip analyst at CLSA, in a report. He expects DRAM makers to cut spending on new production lines, which could spur a price recovery of as much as 10 percent in the third quarter.
Do Hoon Lee, memory chip analyst at Macquarie Securities, warns that second quarter DRAM price declines could be far worse than expected if DRAM makers unload inventory into the market. Macquarie expects many DRAM makers to put the construction of new factories on hold, a move that could boost DRAM prices a bit.