PC-100 demand sends SDRAM prices upward
(4:45 p.m. EDT, 9/25/98)
By Andrew MacLellan
The price of PC-100-grade SDRAMs is climbing steadily on the spot market, fulfilling earlier industry projections that strong demand and an initial shortage of the devices would boost DRAM tags.
The spot-market scenario appears to be playing out in the contract market as well, with NEC Corp. confirming that it will raise the price of its 64-Mbit DRAM parts by 10% in an attempt to stimulate earnings. Other DRAM makers have been less public about their pricing strategies, but several observers said robust demand for fast PC-100 chips could bring a small but sustained pricing upswing.
Predicting an end to general DRAM oversupply in 2000, Mitsubishi Electronics America Inc. reported robust demand for its 64-Mbit parts and said prices have increased 10% in the past month.
“Prices are going up, and we've seen very high demand from our customers; in fact, there is more demand for our products than we can possibly satisfy right now,” said Cecil Conkle, assistant vice president of DRAM marketing for Mitsubishi's Electronic Device Group, Sunnyvale, Calif.
Vendors began shipping PC-100 SDRAMs several months ago as a follow-on to slower 66-MHz devices, and the new parts have become a sought-after way for PC makers to differentiate their products.
According to the American IC Exchange (AICE), a chip brokerage in Aliso Viejo, Calif., all configurations of 64-Mbit PC-100 parts are trading at new spot-market highs; 16-Mbit ¥ 4 TSOP versions are selling for as much as $11.17, after a midyear low of $9.41.
While it's too soon to tell whether the PC-100 uptick will spur a widespread price hike among DRAM vendors, the increase is a signal that OEMs are once again looking toward performance—not only price—to differentiate their mainstream products, according to Avo Kanadjian, vice president of memory marketing for Samsung Semiconductor Inc., San Jose.
“My assessment is that we are in an adjustment period, and that as we achieve stability, our customer base is going to change their focus from pricing to technology and performance,” Kanadjian said.
The momentum driving PC-100 prices higher could be short-lived, however, as several companies prepare to execute die shrinks to increase per-wafer yields, according to Thomas Kurlak, an analyst with Merrill Lynch & Co. Inc., New York. NEC, for example, is readying its so-called J-shrink, moving its 64-Mbit chips to a 0.22-micron process generation that will yield devices measuring just 57 sq. mm.
With Samsung and Micron Technology plotting similar moves, the market could soon be flooded with low-cost chips, according to Kurlak. “For this year, this is about as good as it's going to get” for DRAM makers, he said.
Nevertheless, higher spot-market prices have spurred optimism within the broader market, with NEC upping 64-Mbit DRAM prices in a break from recent trends. Following word that the company will report a loss of nearly $150 million for the first half of its fiscal year, NEC said it will not only raise 64-Mbit prices by 10%, but will cap output at 10 million units per month by December.
While at least some of the current upward DRAM price movement can be attributed to seasonal demand, a general supply/demand balance is possible, according to an NEC spokesman in Japan. “Obviously, it's a time when PC manufacturers are ramping up for the busy buying season, but we expect demand to generally be on the rise into next year,” the spokesman said.
Indeed, after weathering nearly three years of declining prices, DRAM vendors expect that 1999 will bring a return to modest profitability. Samsung, for example, is projecting that a 60% rise in DRAM bit growth in 1999 will be accompanied by a 10% increase in DRAM revenue and a 5% overall increase in semiconductor sales.
Dataquest Inc., San Jose, reports that PC-100 parts could remain in tight supply for the next six to nine months, until second- and third-tier DRAM suppliers can adjust their die shrinks to yield the higher-speed chips. And in a sign that short supply may be contributing to higher prices, AICE noted that PC-100 parts are trading in much smaller lots than commodity 66-MHz SDRAMs.
“We're seeing pretty good supply coming out of the Far East, but nothing in huge quantities,” said Jennifer Bender, a purchasing manager for AICE.
Still, after the seasonal effects have abated and suppliers turn on PC-100 volume production in earnest, the DRAM flavor-of-the-day will likely assume its predecessors' commodity status, according to Kurlak. “We should level out in October with the end of the back-to-school buy, and it's a little too early for the Christmas season, so [the market's] going to plateau,” he said. “By next spring, 100-MHz will be old hat.”
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