January 19, 1998 6:25 PM PST

Memory market future unclear

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Memory chip prices have gained a bit over the past week, but the recent uptick doesn't necessarily signal the shaky market has begun to rebound.

Spot market prices for 16-megabit DRAMs (dynamic random access memory) chips have risen to about $2.25 from an historic low of $2, according to International Data Corporation (IDC) figures. Memory is typically purchased on a contractual basis, which costs more per chip than the spot market, but the latter is closely watched.

Memory prices declined throughout 1997 primarily because of oversupply, falling well below the cost of manufacture, about $4 per chip. The slide was a boon for consumers, contributing to reduced PC prices, but tortuous for manufacturers.

This year's moderate climb is partly attributable to supply and demand coming into alignment, albeit at a very low price point. "You're going to see some increases because of how low they've gotten," observed Mario Morales, IDC's manager of semiconductor research.

Also, memory inventories were cleared at the end of the 1997 to get them off the books, temporarily exacerbating the glut but now allowing for a slight reprieve.

But some of the increase owes to broader events. For instance, South Korean manufacturers such as Hyundai, Samsung, and LG Semicon have reportedly been asked to pay cash for goods necessary in the production process, raising doubts about future volume. Japanese suppliers are refusing to honor letters of credit from Korean banks, hard hit by currency devaluation and a shortage of foreign reserves amid the broader Asian economic crisis.

Meanwhile, industry speculation that Idaho-based Micron will level a fresh set dumping charges against Japanese and/or Korean countries has also acted to edge up prices. A positive finding by the U.S. Commerce Department would lead to the imposition of an import tariff.

Legal action could do the most to lend stability to the memory market, Morales predicted. "This is a short-term uptick that could extend itself depending on Micron's filing dumping charges," he said. Dumping charges would probably be announced by the end of the first quarter, the conclusion of the Asian fiscal year.

 

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