NEC Corp, Trigem Computer Inc and other personal computer makers say a rally in memory-chip prices may end because it was driven by their marketing strategy of boosting computing power, not a pickup in PC sales.
Prices of benchmark memory chips rose as much as 89 percent this year as computer makers almost doubled the main memory of each machine, even though few programs require such power. PC makers say the rise in chip prices may stop them from adding more memory and that sales may slow next quarter.
"Rather than demand from consumers, it's the fact that PC makers have been putting twice as much memory in each machine" that has pushed chip prices up, said Kwon Youn Hak, a finance team official at Trigem, the largest PC producer by capacity.
The rebound in prices has helped fuel a rally in the stocks of memory-chip makers this year, with Samsung Electronics Co, the world's biggest producer, surging 24 percent. Investors are also watching chip prices as Samsung's nearest rival Micron Technology Inc. tries to expand by buying assets from the No. 3 producer Hynix Semiconductor Inc.
Personal computer sales fell for the first time since the industry was created last year, forcing dynamic random-access memory chipmakers to sell the semiconductors for less than they cost to produce. Memory-chip sales shrank by two-thirds to US$11 billion.
This year's recovery in PC demand may take time. Intel Corp, the largest maker of processors, last week told investors it expects computer sales to fall in the second quarter.
Worldwide sales of PCs will slow to 29.4 million units, according to Gartner Inc., down from 30.5 million in the first three months of the year. That may cause Trigem and its rivals to cut orders of chips.
The spot market price of the benchmark 128Mb DRAM chip rose to US$4.48 each yesterday. At the beginning of the year it was about US$2.50, more than a dollar below the level at which analysts forecast companies make money selling the chips.
"Memory-chip prices will face pressure in the second quarter as demand for computers slows due to seasonal factors," said Tim Li, the chief financial officer of Quanta Computer Inc, Taiwan's biggest notebook computer maker.
The DRAM price has already accounted for the increased memory demands of computers using a new operating system from Microsoft Corp, Window's XP, analysts said.
"We've shot up so quickly -- we are close to 230MB per box on average -- it's hard to see memory per box going beyond 256MB," said Jonathan Ross, the head of technology research at Goldman, Sachs & Co Asia.
Few analysts expect DRAM prices to plunge. Last year, some companies cut production and all are slashing spending on new facilities, helping ensure that supply won't exceed demand by too much.
"The bottom is not going to fall out of memory-chip prices, but there is no incremental demand for PCs," said Keon Han, an analyst at Bear Stearns Asia Ltd. Han said he expects a "correction" in the price of chips and shares of chipmakers in the second quarter.