A chronic oversupply of dynamic RAM (DRAM) chips has forced prices of PCs lower and lower over the last few years at the expense of DRAM profits, but a new report from Gartner suggests that DRAM prices are stabilising and business conditions are improving for vendors.
Worldwide DRAM revenue would reach $US5.1 billion in the third quarter, up 37.8 per cent from last year’s third quarter, Gartner said . For the full year, worldwide revenue was expected to reach $US18.9 billion, up 21.8 percent from 2002.
The average selling price of a 256MB chunk of memory is expected to increase 20 per cent in the third quarter, compared to the second quarter, but is still low by historical standards.
DRAM vendors had cut production over the last few years as demand for PCs eased, and supply was just starting to come in line with demand, principal analyst at Gartner, Andrew Norwood, said.
Norwood warned DRAM vendors not to increase production just yet, however, as while stabilising prices were a good sign, they did not mean a DRAM recovery was well under way.
Many memory vendors slashed DRAM production in favour of flash memory, which has in part caused the renewed balance between supply and demand, Gartner said.
Demand for flash memory had increased over the past few quarters, as sales of cell phones soared worldwide.
Major DRAM vendors include Samsung, Infineon, Micron, and Hynix. All have endured difficult years, especially Hynix, which has been propped up by subsidies from the South Korean government, drawing the ire of competitors.
Fluctuations in either the DRAM business or PC business can have notable effects on either market. The falling prices of DRAM have delighted PC buyers over the past two years, but demand for PCs has declined.
Any continued weakness in demand for PCs could abbreviate a potential recovery, Gartner said.
Both Gartner and rival research firm, IDC, expect PC sales to increase 8.9 per cent and 6.3 per cent, respectively, in 2003.
A rise in memory prices could force PC makers to adjust their pricing and PC configurations to compensate for the higher component prices.
The PC market is considered a low-margin business, and any component pricing change is generally reflected in the overall price of the PC, or the features found in the base specification.
Dell noted a slight rise in memory prices when it recently announced its second-quarter earnings, but said that overall component prices continue to decline, and the rise in memory prices had a negligible effect on its earnings results.