Hi Steve Lee; Re: "Please tell me the explanation, in economic terms, of there not being a lot of demand for something, yet its price in the free market carries a premium compared to an alternative product (SDRAM) that is greater than the premium of the cost of manufacture.
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This is a very good question! The thing to remember is exactly what all the Rambus bulls have been saying over and over for the last 9 months. The price that Dell pays for RDRAM is nowhere near as high as the prices shown on smsperling. Dell buys RDRAM on contract, and they get a much better price. The DRAM makers, a few months ago (May?) told Intel that they would only make RDRAM for guaranteed paid contract. That is, they wouldn't make the stuff in the hope that the general market for it would take it off their hands at a good price. Consequently, the prices you see for loose RDRAM is not the market clearing price.
The economic reason for there being a difference includes at least the following:
(1) RDRAM is more expensive to manufacture than SDRAM. In addition, RIMMs are considerably more expensive than DIMMs. Consequently, the premium on RDRAM is not as juicy a target as it appears.
(2) Real RDRAM pricing is far below the prices reported in smsperling. (And SDRAM pricing is somewhat below the pricing he reports.) Rambus longs have stated for months that Dell buys RDRAM at a price considerably below the spot price, and this is undoubtedly correct. If the memory makers did start producing for the spot market, they would quickly drive spot market prices to around 75% over PC133 SDRAM prices, I would guess, and I've been expecting RIMM prices to drop to something like this for months.
But back a few months ago, Intel tried to get the memory makers to go into high volume manufacturing of RDRAM. The memory makers refused. They refused for a number of reasons. First, RDRAM is a much smaller market than SDRAM, so it is harder to predict prices in advance. Second, a lot of them have a dislike of Rambus, and don't want to do anything to support them. Third, they had already built RDRAM parts without firm orders in mid '99 and then got hurt on the Camino fiasco. This absence of risk production of RDRAM is what has kept consumer RDRAM pricing way out of line. Dell gets them a lot closer to the cost of manufacturing. Thus the premium is not nearly so high as it looks.
Rambus management has repeatedly stated that the secret to getting prices down is to get demand, and therefore production, up. Why do you doubt this? The current high price is an indication of low demand. If demand were high, you'd be hearing about Samsung converting all their production over to RDRAM.
-- Carl |
