Product gluts in most industries normally cause companies to cut production until the market improves. But that's not the case in DRAM. DRAM makers cannot afford to cut back on production in part due to the global credit crunch, and also over the fear of losing market share. The global credit crunch means it's harder for companies to find new funding, so DRAM makers need to keep selling chips -- even at cut-rate prices -- to ensure a steady flow of cash to fund continuing operations.
The heavy cost of building new DRAM factories is also an issue. Such plants can cost up to $3 billion each, and companies normally run them 24 hours per day to get as much out of them as they can. DRAM technology advances so fast that companies have to constantly upgrade their production lines, costing them even more money. Since the technology on chip production lines loses its usefulness so fast and the value of the lines erodes quickly, chipmakers are loathe to curtail production, even during market gluts.