At Valiant Computer in North Austin, personal computer hobbyists have been shocked this month by the sudden runup in prices for computer memory.
A 256-megabyte "stick" -- or module -- of memory that cost as low as US$19 in November cost US$54 on Thursday. The price is far from fixed. Manager Shane Gotcher readjusts his store's memory price up and down almost daily in reaction to the spot market, which has risen dramatically since bottoming out in November.
Memory -- the temporary resting place for retrieving computer data and instructions -- is one of the fundamental elements of any computer. Adding memory is one of the simplest ways of upgrading the performance of a computer, because more memory enables the computer to quickly access more information. Seven years ago, memory was one of the most expensive components in a personal computer, but price wars and technology improvements have made it a relative bargain.
But rock-bottom memory prices have risen by upwards of 200 percent in the past month. The price spike has been fueled by greater demand, primarily due to better PC sales over the holidays, and concerns that consolidation in the industry could limit supply. The prices have caught customers at Valiant Computer and thousands of other computer part suppliers by surprise.
"Some people are buying less memory," Gotcher said. "Some of them are buying more because they expect the price to go up even further."
Gotcher is unperturbed. His store sells DRAM modules at close to cost as a way of bringing in customers to buy other computer-related products. Just as consumers are noticing the surge in memory prices, so are large and small computer manufacturers. Falling prices for memory and many other computer components enabled PC makers like Dell Computer Corp, Compaq Computer Corp and others to drive down product prices in 2001, giving consumers their best bargains ever for high-performance machines. Those bargain-priced machines helped stimulate a recovery in PC buying late lasy year to give the industry a little relief from a prolonged sales slump.
But rising memory prices and expected price stability for other key components, including microprocessors, may force PC makers to take a slower approach to lowering prices. Some analysts say stabilizing prices for computer components could signal a temporary truce in the PC price wars.
"When component costs are rising or stable, some of the advantages of direct distribution are muted," said Bill Shope, an analyst who follows PC stocks for ABN AMRO. "The [PC price] declines we've seen from Dell has been the company passing on component price declines and then some."
Dell is affected more by price swings because it doesn't have nearly as much inventory of components as its competitors. When prices are falling, Dell benefits from not having long-term contracts. When prices rise, Dell pays more than others who locked in a older, lower prices. Dell declined to comment. Compaq said Wednesday when it reported fourth-quarter earnings that stabilizing component costs helped it stem the rapid decline in PC prices that had sapped its profits.
The increase in memory prices alone won't affect computer makers' profits much, analysts say. Companies such as Dell will simply end some promotions of free memory upgrades and pass along higher memory prices to customers.
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