Memory Prices Continue Freefall

Thinking of an upgrade to your PC or planning to buy a new one? If so, now may be the time to add a bit more memory to your computer, as memory-chip makers--hit hard by a sharp drop in prices--have been forced to sell memory chips for less than it costs to produce them.

"Everyone is selling below cost," says Dorothy Lai, a semiconductor analyst at Gartner.

For consumers wanting to upgrade their machines or those building their own computers from parts, the collapse in prices has had some very noticeable benefits. A year ago, a 128MB stick of SDRAM cost around $41 on Asia's memory market, according to data from memory-chip price tracker ICIS-LOR. Today that same stick of memory costs less than $10.

For users wanting to pack more advanced DDR or Rambus memory chips into their machines, the drops have been even more dramatic. A 128MB stick of DDR memory has fallen from around $250 a year ago to $20 today, and Rambus memory has dropped from $320 per stick to $45 today.

Loading Up on Memory

Nowhere can these drops be seen more than in the bustling streets of Akihabara, Tokyo's gadget and electronics paradise, where numerous stores sell all manner of PC parts, from memory chips and processors to hard disk drives and power supplies.

"With the lower prices, people are loading more memory chips into their PCs," says Hideki Miyamori, a floor manager in the memory section of Faith, a store in Akihabara.

"A year ago, 128MB modules were the mainstream, but now it is 256MB. The price of 128MB of memory is at the stage that it is so low, it can't get any cheaper."

Major PC makers are also seeing benefits, although the price drop might not be immediately evident to consumers.

Sony, which produces the popular VAIO range of personal computers, hasn't reduced prices but is loading in more memory for the same amount of money, says Mina Naito, a spokesperson for the company.

Lower prices have also made it possible to offer more basic computers at a competitive price. "Sony has been able to widen its lineup of VAIO machines, giving consumers more choice," she says.

Multiple Factors Cause Drop

The precipitous drop in prices over the past year has been caused by a couple of factors, including inventory problems associated with a drop in demand for PCs, and overcapacity, Gartner's Lai says.

At the heart of the drop in DRAM prices lies a disconnect between supply, including DRAM manufacturing capacity, and demand. DRAM companies are simply making more memory chips than users and PC manufacturers want to buy. The problem of capacity has been exacerbated somewhat by the efforts of creditors and the South Korean government to keep Hynix, which was the third-largest DRAM maker in 2000, from going out of business.

If Hynix were to close down, that would perhaps reduce the total amount of DRAM being produced and give a boost to prices. But it would not solve the problem completely.

Blaming the collapse of DRAM prices on Hynix oversimplifies the problem, Lai says. "Hynix was just part of the reason; the main reason [DRAM prices have dropped] was inventory," she says. Manufacturers of PCs and other devices misread demand early this year and have been left with more memory chips than they need. "Manufacturers have stored DRAM thinking that the price might go up," she says.

While there are bargains to be found now, there are no signs that prices will go up any time soon. "Prices could go down even further," she says.