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Analysts warn of DRAM drought

It's gonna get choppy in the chip channel

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The IT industry is about to see a DRAM drought spanning two years, according to the voices of doom and gloom at Dataquest. Average selling prices firmed up last year as the industry started to recover from years of slump which saw yearly sales plummet from $42 billion in 1995 to $15 billion in 1998. For 1999 worldwide DRAM revenue grew 40 per cent to $21 billion. But demand will start to outstrip supply by the middle of this year. For 2000, DRAM sales are expected to be up 43 per cent to $30 billion, topping the $60 billion mark by 2003, Semiconductor Business News reported. Dataquest was so impressed by the recent performance of the sector that it has increased its previous forecast on overall chip sales for 2000. Revenues are now expected to reach around $200 billion, up on the earlier $182 billion projection by the company. The shortages, caused by under-investment in the sector, are expected to fuel manufacturers' spend on factories to $16.4 billion in 2002, compared to this year's $8 billion. This compares to the low point in 1998 when DRAM vendors only spent $4.1 billion on keeping their conveyor belts rolling. But it is too little too late according to analysts. "Most of the spending in the last few months has been on limited upgrades, but we can expect to see a big uptake in capital spending over the next six months," said Richard Gordon, senior analyst at Dataquest. "There is a looming capacity crisis, especially in DRAM. Come Q2 or Q3, there will be actual shortages - not like now where the industry is still teetering on the brink of under supply," he said. ® Related stories: The chips were up in 1999 Chips hit four year high

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