DRAM price increases will be temporary

The average price of a DRAM will fall 37% this year

By Jim Carbone -- Purchasing, 7/2/2008 2:23:00 PM

Contract and spot market DRAM prices began to increase in the second quarter, but the increases will be short-lived.

Nam Kim, principal analyst for researcher iSuppli in El Segundo, Calif., says that DRAM cost typically declines by about 30% per year as suppliers achieve manufacturing efficiencies in the production of higher density parts.

“Thirty percent is kind of the break-even point for suppliers,” says Kim. If price declines are more than 30%, they lose money. If price erosion is less than 30%, they make money.

“Last year on a megabyte basis, prices declined 51%, so everybody lost money,” he says. This year we expect a 37% decline.” Much of the decline apparently has already occurred. The Semiconductor Industry Association says that DRAM prices fell about 34% in the first four months of the year.

“Prices bottomed out sometime in the end of April or early May,” says Kim.

That’s good news for suppliers and buyers, according to Kim. “OEM buyers are becoming concerned about possible supply disruptions because some DRAM suppliers are on the edge of bankruptcy,” says Kim. “Further price declines will not benefit OEMs. If a supplier goes bankrupt, there will be a shortage.”

There may be shortages anyway, however. Price declines were so severe last year that DRAM manufacturers drastically cut back their capital expenditures (capex) in 2008. Such spending is used to boost capacity, which is necessary because DRAM bit demand always grows fueled by annual double-digit increases in computer shipments.

Also see: DRAM market to bounce back