Consumers Benefit From Chip Price Decline For The First Time In Three Years, Memory Chip Price Drops Reach Personal Computer Owners
Personal computer owners are finally starting to benefit from a sharp drop in memory chip prices that began last fall.
The drop is the first in three years, a time in which other important PC components like microprocessors, hard drives and modems have adhered to the steady march downward that characterizes the industry.
It first showed up in late October or November, causing a decline in the stock value of semiconductor companies like Micron Technology Inc. and Texas Instruments Inc.
But with the exception of a few stores in technology centers like northern California and central Texas, the drop was not reflected in prices charged to consumers through the holidays.
In January, drops of 25 percent to 40 percent started to show up in catalogs. The January catalog of Insight Direct Inc. even said, “Memory prices are dropping daily, call now for the latest.” At another catalog firm, PC Connection Inc., a 4 MB memory module had slipped from $219.95 in December to $149.95 last week.
And now, as retailers have started to clear inventories, lower-priced chips have started to appear in stores.
“What we’ve seen in the past few months has been unprecedented,” said Mark Polinsky, chief executive officer of Visiontek Inc., one of the nation’s largest sellers of memory products. “Today it’s a buyer’s market.”
No one is certain that will last long, though.
The most advanced PCs are starting to use chips that have different technical designs, known as “EDO” for extended data output and “synchronous DRAM.” There are less of those chips than of the so-called “fast-page mode” design that’s been common previously.
In addition, memory chip makers are watching prices very closely and some, including Micron, have slowed construction of new plants to make sure they don’t start producing into a crowded market.
“What’s hard to measure is exactly how much new manufacturing capacity is coming on stream and how fast,” said Mel Thomsen, analyst at Pathfinder Research, a semiconductor industry research firm in San Jose, Calif. “If prices get too soft, the companies may say ‘Let’s not open that plant as fast.”’
“Supply will probably tighten up as you look out at second part of year,” said Gary McDonald, vice president of marketing for Kingston Technology Inc., the biggest maker of memory upgrade modules. The company lowered its prices 20 percent in October and another 20 percent last month.
The price-performance measurement, or price per bit, of all computer chips generally follows a straight diagonal line downward, getting cut in half every two years or so.
But the price per bit of memory chips had held steady from early 1993 until last November, when it was far above where the historical trend suggests it should have been.
A key reason for the unusually long period of stability is that supplies of memory chips became constrained when Japanese manufacturers, hurt by recession in the early part of the decade, stopped building new plants. Demand for chips, meanwhile, was growing sharply. Last year, sales jumped 40 percent.
By the fall, however, production had increased because of new plants and usage of bigger silicon wafers, which yielded more chips.
And many distributors and retailers had stocked up on them in anticipation of higher demand due to the processing needs of Microsoft Corp.’s new Windows 95 operating software. When that program failed to sell as many retail versions as anticipated, a chip glut started.
In the final weeks of December, more chips arrived in spot market as PC makers whose sales fell below industry averages in the fourth quarter offered leftover components to the spot market.
“People began to burn off their inventory. That’s going to be accelerated by the Taiwanese around Feb. 18 and we expect a Japanese inventory dump in March,” said Peter Cannone, director of sales operations at New England Circuit Exchange, a high-volume trading house for computer chips in Peabody, Mass.