The Wildest Ride in Memory -- Vendors Brace for Upturn in a Downhill Market
Dec. 11, 1998 (Computer Retail Week - CMP via COMTEX) -- Oversupply
has diminished memory prices and vendors' profits in recent years, but
consumer demand and new technology are expected to revive the market by
the year 2000.
"The memory market in general has suffered a 60 percent decline in
selling prices per megabyte each year since 1995," said Jim Handy,
principal analyst for Dataquest, San Jose, Calif. "In 1995, [memory]
vendors were achieving gross profit margins up to 85 percent, but are
now forced to sell product at variable cost."
Lou Varuzzo, product marketing manager for PNY Technologies, said
prices hit "rock bottom" last month, but are beginning to regain some
ground.
"It is still a very volatile market, and we pretty much have to make
daily changes to our retail pricing sheets," he said.
According to Dataquest, memory consumption in the U.S. market has
increased at a rate of 70 percent per year and is projected to
continue. "Demand will begin to eclipse supply in early 2000, according
to our estimates," Handy said. "That will create a shortage, and
profitability will return once more to the memory market."
During the past several years, various memory architectures have
entered the market. The latest is PC100 memory, which is designed to
work with 100MHz-bus motherboards and processors. Vendors predict sales
of PC100 memory will remain strong through 1999, but supplies of older
memory technologies, such as EDO (extended data out), may be
constrained.
"Legacy PC users may find it difficult to locate memory upgrades next
year, because vendors will be concentrating on the next step in
memory," said John Sutherland, director of new product development for
Kingston Technology.
The next PC memory technology, Direct Rambus Memory System (or Direct
RDRAM), is scheduled to debut in systems by Q3 1999, industry sources
said.
Designed by Rambus, Direct RDRAM is a memory subsystem that yields
significant performance gains over existing formats. However, observers
indicated the subsystem will not be backward-compatible and will
require a new chip set to function.
A spokeswoman for Rambus confirmed that Direct RDRAM cannot be used
to upgrade existing PCs. The subsystem will be included in systems
based on future Intel and AMD chips and will improve system
performance. Specifically, Direct RDRAM operates at 800MHz, compared
with the 100MHz provided by PC100, she said.
Some memory vendors view the expected migration to Direct RDRAM with
optimism, eyeing the potential for renewed profitability in the
segment. Others are less thrilled about paying a royalty to Rambus to
manufacture the new memory.
Rambus on Sept. 15 began a validation program for vendors to "enable
a smooth transition" to the new technology, but memory vendors are
still waiting for approval.
"The conversion to Direct RDRAM is going to happen, and it should be
healthy for the industry," said Shannon Biggs, executive vice president
of manufacturing engineering for Viking Components. Viking plans to
begin production of Direct RDRAM in Q2 next year.
Biggs said manufacturers producing Direct RDRAM will incur tooling
costs and licensing fees, but costs can be amortized because the new
format should be the standard for the next three years.
"I think prices for Direct RDRAM will carry a 30 percent to 50
percent premium over PC100 RAM next year," Biggs added. Higher prices
may mean better margins. Biggs also said it will be critical to get
inventory to retailers to meet demand for the new Direct RDRAM systems
when they arrive in stores.
PNY also has applied for a license to make Direct RDRAM. Varuzzo
expressed concern over the new technology because it is not an open
architecture. "Still, staying on the sideline will make it very tough
for any vendor to compete in the [memory] market," he said.
Intel is a strong supporter of the new memory technology and
maintains that Direct RDRAM will bring new levels of performance,
flexibility and cost-savings to the market.
Intel has shipped sample chip sets supporting Direct RDRAM to
top-tier PC vendors, sources said. Direct RDRAM will likely debut with
Intel's higher-end Katmai processor, slated for release next year.
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