Olympic Games Torch DRAM Market

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Just when it didn't seem like things could get any worse for the global DRAM market, a Chinese crackdown on pirated goods ahead of the Olympic Games has sent chip prices even lower.

But while that may be bad for DRAM makers, it's great news for IT managers and anyone else who might need more of the chips to improve system performance.

When DRAM prices go down, PC vendors tend to add more of the chips to systems or offer additional DRAM as an incentive. DRAM makers also tend to hurry new, more profitable technologies to market during downturns.

DRAM chips are a PCs main memory and are vital to system speed.

Chinese import restrictions ahead of the Beijing Olympic Games have hurt DRAM spot market demand, pushing prices lower, said Eric Tang, a vice president at Powerchip Semiconductor, Taiwan's largest DRAM maker.

China is home to the world's largest spot DRAM market, so a crackdown on pirated electronics goods that slows imports can have a big impact on DRAM prices.

Market researcher DRAMeXchange Technology said Chinese authorities want to clean up pirated goods ahead of the Olympic Games as part of its mission to eliminate activities that may tarnish Beijing's image during the event.

The price of the most widely used DRAM, the 1G-bit 667MHz DDR2 (double data rate, second generation) chip, fell to as low as US$1.78 on Tuesday. The price is below the cost of production for most DRAM makers and the pain is being seen in their quarterly earnings.

German DRAM maker Qimonda AG, for example, reported a net loss of €401 million (US$624.9 million) in the quarter ended June 30, its fifth straight quarterly loss. The company blamed a 45 percent decline in average selling prices, in part, for the loss. Micron Technology of Boise, Idaho, reported a US$236 million loss in its most recent quarter.

iSuppli, of El Segundo, California, blames bloated DRAM inventories for the price declines. The market researcher notes that DRAM shipments rose 15 percent in the second quarter, much higher than the anticipated 10 percent increase.

Contract prices for DRAM chips could fall by as much as 10 percent over the next few months from current levels due to the supply glut, iSuppli said. Around four fifths of all DRAM are sold by contracts between PC vendors and DRAM makers, while the remaining 20 percent are sold on global spot markets.

It's hard to say when the DRAM business will improve.

While most DRAM makers plan to cut back on installing new production lines, the two biggest companies in the business, Samsung Electronics and Hynix Semiconductor, continue to aggressively improve production technology and increase output, iSuppli said. Their efforts could delay a DRAM price recovery until the second half of 2009.

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