Memory Life's a Roller Coaster!
After the flood, the famine
By Alan Stanley, MD Dane-Elec The roller coaster ride continues. Just two months ago anybody that had to sell memory was complaining that there was a glut of memory in the market. Now, look what's happened, a sad lack of abundance. Nitto, nil, diddlysquat, sums up the state of play in today's memory market. Six weeks ago I was asked where I thought the price would be going in the following month. Ha, I said, we are at $5.00 a 64Mb DRAM now. The price will probably rise; it will go up to as much as $6.00. An astronomical price rise in itself, and one that many would never have been believed would happen. Anybody that had predicted it and actually believed that it would happen would have gone on a wild buying spree. But we did not see it. Users have been used to prices falling all this year. Previously, you would seriously question having to pay the same price that you paid the previous week. Most replies I got were not polite. Nobody heeded the warnings and stocked up at a slightly higher price. Well rise it did, I assured people that the $6.00 ceiling was going to sort the market out, that everybody would be happy and we would reach equilibrium. What has in fact been witnessed though has astounded most. Nobody really seems to know exactly what has happened, but at the time of writing, a 64Mb DRAM was difficult to find at $8.00. Amazingly enough a 33 per cent price rise in four weeks is difficult to believe. Hard to grasp for some, others however will remember the days of the Japanese plastics factory fire. A five per cent price rise in two to three days. That mini crisis pushed prices up for 3 months. Manufacturing output has been reduced. Worldwide memory overproduction was flooding the market, resulting in constantly falling prices. The manufacturers had their fingers burnt. Some stopped DRAM production altogether. Others cut back production. The problem was that they were not making money. Price rigging? Not me I have been accused in the past of suggesting price rigging by manufacturers. What people do not understand is that new products don't just happen. New products take many years and millions and millions of dollars to produce. What use is a semiconductor industry that does not make a profit? If we all want bigger, better, faster computers we have to allow these people to make a living. A good living, because profit is needed to finance research and development. So what holds for the future? There has to be a let up in the constant price rises. But they will only occur if and when DRAM produces increase their output. After the lessons they have learnt in the past, it might not be the easiest thing to do. You just can't turn on a tap and double the output of DRAM. Most manufacturers are on allocation, something that three months ago we didn't think possible. They do not (or say they don't) have product stockpiles around the world in warehouses. OEM customers are still getting supplies that they have committed to take from the DRAM manufacturers. What there is very little of is opportune business. You cannot telephone a DRAM OEM today, order some product and expect delivery this side of December. So what's the outcome of all this for the memory user? Well there is a marked decrease in the amount of grey market product. Meaning better quality and stable prices within a defined high and low of about five percent unlike the 20 odd per cent differences that we experienced earlier this year. Prices may continue to rise as the market adjusts itself to the new found levels. Just think of it in the way that you are now paying for all the cheap product that you purchased earlier this year. DRAM OEM's now have to gross 45 per cent more to pay for their losses and leave them with a positive balance sheet before the year 2000. ®
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