Drop in DRAM prices could reach critical point in 2011

Prices for DRAM continued to decline throughout December, dropping to the lowest point throughout 2010, a trend that is set to continue in 2011 according to iSuppli figures.

The contract price for a 2GB DDR3 DRAM module stood at just $21.00, representing more than a 50 percent drop from $44.40 in June that year. DDR2 also saw a nose-dive in prices from previous generation devices, declining from $38.80 six months ago to $21.50 in December.

The attached figure shows the average selling price (ASP) for DDR2 and DDR3 DRAM modules in both the 1GB and 2GB densities from April to December in 2010.

According to Mike Howard, principal analyst for DRAM and memory at iSuppli, DDR3 has faster transfer speeds and consumes less power than the older DDR2 device type, yet prices have fallen faster for DDR3 than for the other varieties of DRAM because of its high volume, accounting for more than 60 percent of total DRAM bits shipped during the fourth quarter.

It is thought that DRAM prices in general have been affected by soft PC demand in general, particularly during the first half of 2010, as well as by greater supply of commodity memory following a solid increase in bit shipments during the second half.

Howard believes that the lethal combination of falling demand and growing supply has effectively placed a great deal of pressure on DRAM ASPs.

The decline in prices means that it has become considerably less expensive for PC original equipment manufacturers to pack machines with more DRAM, with DRAM content per PC growing by 24 percent in 2010.

It is also forecasted DRAM content per PC will continue to expand by more than 33 percent in 2011, because as long as DRAM costs equate to less than 10 percent of the ASP for PCs, manufacturers will continue to increase the memory content in their computers.

Howard believes that the downward trend is set to continue in the first half of 2011, reaching a critical point when DDR3 reaches $1 per gigabyte, with the prospect of costs exceeding expenses.  When this situation occurred in 2008 manufacturers with lagging process technology were forced to throttle down production.

Howard believes that in the coming months it will be important to note how far DRAM companies can stay ahead of costs in order to maintain normal operations.

“With leading DRAM processing already at the 3x-nm node, working in the older, less efficient 6x-nm and 5x-nm nodes will not be as cost effective during the coming months, and higher costs and shrinking margins will be incurred as a result,” Howard observed.

However, while DRAM prices are expected to continue to decline during the first half of 2011, with 2GB DDR3 modules reaching less than $15 by the end of the second quarter, the balance between supply and demand will improve at the end of the second half next year, temporarily slowing down or halt the drop in prices.