Gartner: DRAM vendors stabilizing prices

Analysts warn recovery isn't in full swing

A chronic oversupply of DRAM (dynamic RAM) chips has forced prices of PCs lower and lower over the last few years at the expense of DRAM profits, but a new report from Gartner Inc. suggests that DRAM prices are stabilizing and business conditions are improving for vendors.

Worldwide DRAM revenue will reach $5.1 billion in the third quarter, up 37.8 percent from last year's third quarter, Gartner said Tuesday in a press release. For the full year, worldwide revenue is expected to reach $18.9 billion, up 21.8 percent from 2002.

The average selling price of a 256M-byte chunk of memory is expected to increase 20 percent in the third quarter, compared to the second quarter, but is still low by historical standards. DRAM vendors have cut production over the last few years as demand for PCs has eased, and supply is just starting to come in line with demand, said Andrew Norwood, principal analyst at Gartner, in the release.

Norwood warned DRAM vendors not to increase production just yet, however, as while stabilizing prices are a good sign, they do not mean a DRAM recovery is well under way, he said in the release.

Many memory vendors slashed DRAM production in favor of flash memory, which has in part caused the renewed balance between supply and demand, said Gartner, which is based in Stamford, Connecticut. Demand for flash memory has increased over the past few quarters, as sales of cell phones soar worldwide.

Major DRAM vendors include Samsung Electronics Co. Ltd., Infineon Technologies AG, Micron Technology Inc., and Hynix Semiconductor Inc. All have endured difficult years, especially Hynix, which has been propped up by subsidies from the South Korean government, drawing the ire of competitors. 

Fluctuations in either the DRAM business or PC business can have notable effects on either market. The falling prices of DRAM have delighted PC buyers over the last two years, but demand for PCs has declined. Any continued weakness in demand for PCs could abbreviate a potential recovery, Gartner said.

Gartner and rival research firm IDC expect PC sales to increase 8.9 percent and 6.3 percent, respectively, in 2003.

A rise in memory prices could force PC makers to adjust their pricing and PC configurations to compensate for the higher component prices. The PC market is considered a low-margin business, and any component pricing change is generally reflected in the overall price of the PC, or the features found in the base specification.

Dell Inc. noted a slight rise in memory prices when it announced its second-quarter earnings last week, but said that overall component prices continue to decline, and the rise in memory prices had a negligible effect on its earnings results. Hewlett-Packard Co. will report quarterly earnings later on Tuesday.

Copyright © 2003 IDG Communications, Inc.

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