Now the Standard: 1Gb DRAM

The 1G bit DRAM (dynamic RAM) chip has replaced 512G bit DRAM as the mainstream memory capacity in the PC industry as of October, according to DRAMeXchange, a sign most PCs coming off production lines can now use Microsoft's Vista OS.

All of the premium versions of Vista require more DRAM per PC to ensure smooth operation of the OS, which is more complex and requires more hardware than its predecessor, XP.

The changeover in the DRAM market has taken longer than many companies expected. Several DRAM makers built new factories in anticipation Vista would take the PC market by storm this year and antiquate XP. That hasn't happened. Instead, the adoption of the new OS is moving along at a steady pace, albeit slower than the DRAM industry expected.

The heavy investment in DRAM factories, however, has caused a massive oversupply. Prices of most DRAM chips have fallen by over 70 percent so far this year, and are currently near or below the cost of production for most companies.

The contract price of 1G bit, DDR2 (double data rate, second generation) DRAM chips that run at 667MHz fell 12.5 percent from two weeks ago to US$2.63 each, a new low for this year according to DRAMeXchange, which runs an online trading site for the chips. The most recent DRAM slump hit in early October, as prices fell by 25 percent. Analysts said the market may not turn around until late next year, and possibly later if companies keep building new production lines.

"We do not expect memory chip makers to show any improvement in profitability at least until [the second half of 2008] unless there is stabilization or a recovery in pricing," said Warren Lau, chip industry analyst at Macquarie Research.

Samsung Electronics Co. Ltd. already increased its production line spending plans 23 percent this year, he said, and the aggressive stance will likely cause rivals such as Elpida Memory Inc. and Hynix Semiconductor Inc. to follow suit so they can protect or increase their DRAM market share.

Increased spending amid a chip glut should keep DRAM cheap for a while. Market prices normally take about a month to filter down to users, according to one DRAMeXchange analyst, and users can benefit from lower prices in a few ways. PC vendors often increase the amount of DRAM per computer when prices are low, or offer additional DRAM as an incentive to buy a new PC. Also, the price of DRAM modules found in stores will fall as retailers clear out their older, more expensive inventory.

Contract DRAM prices are renegotiated every two weeks between DRAM makers and PC vendors such as Hewlett-Packard Co. and Dell Inc. Around 80 percent of all DRAM is sold by contract, while the rest is sold on a spot market similar to commodities trading in oil and gold.

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