Dataquest: DRAM market to get worse

Weakened by a collapse in prices that began over a year ago, the world's DRAM (dynamic random access memory) manufacturers will face even lower sales in 2002 and be hit by a wave of industry consolidation, according to market research company Dataquest Inc.

Worldwide sales are expected to be US$10.5 billion this year, a large drop from the $31.5 billion estimated for 2000, said Dataquest. Next year the market is expected to shrink further to $8.5 billion, said the company in a summary of a new report.

Worse still for DRAM makers, many of which are unable to turn a profit on their DRAM operations because of low prices, Dataquest analyst Andrew Norwood predicted in the statement that the companies will continue to lose money until the end of next year and that this situation may lead to the failure of some companies.

South Korea's Hynix Semiconductor Inc., one of the world's largest manufacturers of DRAM chips, is already on the verge of bankruptcy. It has rescheduled debt repayments several times and is currently shedding noncore units in an attempt to stay afloat.

Dataquest's warning came as spot prices for DRAM chips continued to fall on world markets. In Asia, the spot price for 128M bit PC133 DRAM chips, a component now becoming standard in many PCs, stood at around $1.00 on Wednesday, according to market pricing service ICIS-LOR. Three months ago the same chips were trading for around $1.65 and at the beginning of the year cost around $5.40 per chip.

The upside of this situation for consumers is that computer memory is now very cheap and loading a machine up with 256M bytes of memory costs a fraction of what it did a year ago. The failure of a major memory chip maker, should it happen, would likely send prices upwards because its closure would mean lower production of chips.

Consolidation has already begun in the sector. Earlier this year NEC Corp. and Hitachi Ltd. merged their advanced DRAM operations into a single company, Elpida Memory Inc., and Toshiba Corp. said in the middle of this year that it is looking for a partner for its DRAM business.

Talks between Toshiba, Samsung Electronics Co. Ltd. and Infineon Technologies AG have already taken place although Toshiba has yet to decide what to do, a company spokesman said Thursday. On the same day, Japan's leading business daily reported Toshiba was in the final stages of discussion with Infineon on the creation of joint ventures for both DRAM and flash memory chips.

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