DRAM prices soar as supplies shrink
By Crista Souza
EBN
(01/04/02 16:59 p.m. EST)
DRAM makers are raising contract prices as much as a third in response to demand on the spot market, where the value of 128Mbit synchronous chips spiked after Christmas due to tightening supplies.
Vendors hope price increases will restore profit margins, but lack of visibility beyond January has many wondering how long they can defend the higher tags.
What is clear is that deep cuts in DRAM production during the past year allowed surplus inventories to be bled off, and are now affecting the industry's capacity to fill new orders.
“Demand has been a lot stronger than our ability to support customers,” said Farhad Tabrizi, vice president of worldwide marketing, memory products, at Hynix Semiconductor Inc.
The Korean chipmaker this week raised prices for 128Mbit synchronous DRAM by 30%, to just over $2 a chip. Additionally, Hynix has put high-density SDRAM and double-data-rate SDRAM parts on allocation, according to Tabrizi.
Samsung Semiconductor Inc., San Jose, also confirmed a 30% price hike on its 128Mbyte PC133 DIMMs. The company declined to say what prices it is quoting to OEMs, but on the spot market this week the modules fetched up to $25.
“We started raising prices in the channel in October because of insufficient supply,” said Tom Quinn, vice president of marketing at Samsung. “We started negotiating increases of contract prices in November, and they became effective in December.
“Is it sustainable? We shall see,” Quinn said. “I can tell you we were pleased with November and December [sales], and January looks very good.”
DRAM equilibrium has been evident in recent weeks with pricing on certain configurations firming, bringing relief to chipmakers that were under water for much of 2001.
With supplies abundant, OEMs often paid prices below chipmakers' manufacturing cost-as low as 80 cents a chip at the trough, Tabrizi said. By mid-December, contract pricing on 128Mbit SDRAM chips stabilized in the range of $1.45 to $2, according to DRAM-eXchange.com Corp., Taipei.
While a 30% price increase is substantial, suppliers said memory components still account for less than 3% of the total system cost.
A spokesman at Micron Technology Inc., Boise, Idaho, wouldn't say whether the company is renegotiating pricing with its long-term customers, but said if other suppliers raised prices Micron would likely follow suit.
Elpida Memory (USA) Inc. has been gradually increasing prices for the last four to six weeks, said Jim Sogas, vice president of North American sales in Santa Clara, Calif. He said pricing varies by customer contract, but generally the memory industry moves in unison on price adjustments and “stays very close together” on average selling prices.
Industry executives cited a number of possible stimuli, a combination of which probably led to the surge in DRAM prices.
Hynix's Tabrizi said OEMs have burned off excess DRAM inventories and are keeping reserves lean, ordering components on short lead times to support their build-to-order business models.
At the same time, seasonal strength boosted PC main memory demand-particularly for 128 and 256Mbit DRAMs-both from strategic accounts and broker channels, Tabrizi said.
Some sources suggested that high- density SDRAM is getting a tailwind from a rush on DDR SDRAM in anticipation of Intel Corp.'s release next week of the Pentium 4- compatible 845D chipset with support for DDR memory.
Sales volume gains leading up to the holidays helped eat up spare capacity. The Semiconductor Industry Association reported that DRAM unit volume in November was up 17% from November 2000, while unit volume for all ICs was off 28.6% from a year ago. December's figures aren't yet available, but are expected to show further gains.
“[DRAM makers] experienced a demand increase over the holidays, which is normal,” the Micron spokesman said. “I wouldn't try to say whether the increase was better than expected.”
Semico Research Corp., Phoenix, is forecasting DRAM bit consumption to grow 76% this year, up from 62% in 2001, as communications OEMs resume component buying.
Supply outlook
On the supply side, the outlook largely depends on the outcome of DRAM merger talks between Hynix and Micron, according to Semico analyst Sherry Garber.
In December, Micron agreed to acquire Toshiba Corp.'s DRAM business, a move that is expected to further restrict supplies and help stabilize prices.
With inventories lean, demand returning, and the supply base shrinking, “there's potential for tight supply in the second half of 2002,” Garber said, though she stopped short of predicting a shortage. |
