Year a Bad Memory for DDR2

This was supposed to be the year that a speedier new DRAM moved into the mainstream: a technology that could lower power consumption while increasing data speeds. But the technology, DDR2, failed to make the grade, due largely to a lack of acceptance among desktop PC users.

The fact that DDR2 didn't hit the numbers to be dubbed the mainstream, or most widely used DRAM chip, doesn't mean it never will. It's expected to become the mainstream chip next year. But its lack of acceptance in the market this year will likely slow the pace of improvement in DRAM technology.

Next Release Slowed

The next generation, DDR3, probably won't move into PCs until 2007, despite the fact a type of DDR3 is already being paired with high-end graphics chips inside game consoles, said Joyce Yang, a manager at DRAMeXchange Technology, an online memory chip clearinghouse.

Users probably didn't notice any blips in desktop performance. The old workhorse and current reigning DRAM market leader, 256-megabit DDR chips that run at 400MHz, or DDR-400, maintained its leading share of the global DRAM market in 2005. It's probably a good thing for users, since they only missed out on getting a little performance bump earlier--and at a price some analysts said wasn't really worth it anyway.

The type of DDR2 DRAM that has been flogged on the desktop market for most of this year didn't offer a significant performance boost over the current mainstream chip, DDR-400. DDR 2 just didn't offer enough of a boost to justify its higher price, said James Huang, a chip industry analyst at SinoPac Securities in Taipei.

"The frequency is the main point," Huang said. "At 400MHz and 533MHz, DDR2 isn't significantly better [than DDR-400] for desktops. At 667MHz, DDR2 will probably become more attractive to people."

In notebook PCs, DDR2 won the lion's share of the market because its power-saving qualities lengthened battery life. But for desktop users, power efficiency isn't important enough to justify the extra cost, Huang said.

DRAM makers contributed to DDR2's inability to become mainstream in 2005 by offering users only a 512-megabit DDR2 chip running at 533MHz, instead of a less expensive 256-megabit version. Although higher-end desktops made use of DDR2, most desktop purchases have been for lower-end PCs, where price tends to count more than performance, said Crystal Lee, an industry analyst at ABN AMRO Asia in Taipei.

Vendors Maneuver

Desktops are the key battleground for market supremacy among DRAM chips. DDR2 has already taken over as the main DRAM for servers and notebooks, but because it has failed to win over desktop users, it might not become the industry's mainstream chip until the second quarter of 2006, said Eric Tang, a vice president at Taiwanese DRAM maker Powerchip Semiconductor.

Powerchip Semiconductor has pushed back its plans to increase DDR2 output, mainly because slow adoption of the chip among desktop users has pushed its price down.

The price PC makers pay for DDR-400 has dropped by almost half this year, to $2.39 per chip in the second half of October, according to DRAMeXchange, an online memory chip clearinghouse. Over the same period, prices for DDR-533 fell by nearly 61 percent, to $4.53.

DRAM producers can make more money on DDR-400 because it sells in a 256-megabit capacity, instead of the 512-megabit capacity of DDR2. (Since DRAM makers figure out cost on a per bit basis, 256M bits of DDR2 should cost half the price of 512 megabits, or around $2.26 per chip, less even than the current price for DDR-400.)

Representatives from Taiwanese memory chip makers Nanya Technology and ProMOS Technologies also blamed a lack of chipset support for the DDR2 troubles.

"DDR2 is still being impacted by a shortage of chipsets. The situation won't be alleviated until the first quarter of 2006," said Ben Tseng, spokesman for ProMOS.

Hedging Bets

Intel markets chipsets that work with both DDR and DDR2. Many PC vendors have opted to use them for cheaper DDR-400 memory, while AMD has not yet rolled out support for DDR2 in desktop processors.

Once Intel rolls out chipsets that support only DDR2, and AMD jumps aboard with DDR2 support, DDR2 will become the mainstream memory type, said DRAMeXchange's Yang. She expects the transition to take place around April 2006, at the earliest.

Yang expects the DRAM market to move quickly up the megahertz ladder with DDR2, with the incrementally speedier 800MHz variety hitting mainstream near the end of 2006.

For users looking to get a good deal on DDR or DDR2 DRAM, the early part of next year should be a buyers' market as a glut of chips pushes prices further down, according to an executive from Samsung Electronics.

Vice President Ilung Kim told investors earlier this month that DRAM would be a tough business from December through early next year. And Samsung should know: it's been the world's largest DRAM maker for several years and is accustomed to the chips' cyclical price moves.

"The first half of 2006 does not look good, especially for DDR2," Kim said. DDR2 will gain share in game consoles and even 3G phones in coming months, but not in PCs, he said.