Memory Pricing

A Basic Introduction by Dave Myers

The basic component of computer memory, silicon, is a commonly found mineral, that make up roughly 25% of the earths crust and is cheap and easy to find. What makes it become so valuable is its alteration within semiconductor fabs that costs billions of dollars to build and maintain.

There are only a few companies worldwide, and roughly 60 fabrication machines that are capable of handling silicon wafer production processes. Consequently, anything that affects even a few of those fabs will affect the market and cause prices to fluctuate. Memory chips, sometimes called IC's which is short for integrated circuits, are a commodity much like coffee or soybeans. Furthermore, prices are unregulated so there is no restriction on what someone can charge for any particular chip.

Basic supply and demand are always pushing prices up and down. Companies change product mixes and production volumes to try to find the most profitable mix. Buyers negotiate for the best prices available and often switch vendors. Ultimately, the one factor that most affects what memory costs is what the market is willing to pay. The multi-billion dollar question is not only what the market can bear, but how are the players behaving psychologically because of their needs and expectations for where pricing will go in the future.

Rumor and speculation often affect pricing. For example, it is not at all uncommon for a company in the channel to decide to buy extra parts, gambling that costs are going to rise. If the company buys enough chips, it gives the impression that there is more demand than there actually is. The market operates on rumor and speculation, and the belief there is increased demand is enough to make the other companies start to buy and increase their stock levels as well. Pricing rises as these companies buy and stockpile memory until everyone has as much as they are comfortable with and the false demand dries up. The problem with this scenario is the memory isn't going onto computers, but rather sitting in warehouses. As soon as everyone stops buying, the price sags and starts to go back down again. All these companies with stock get concerned because they have all this memory and the price is falling so they start selling at a slight discount, which naturally drives the cost down even more. These types of waves happen in the memory market commonly, so pricing is very volatile.

There are other, more concrete reasons for prices to fluctuate as well of course. Right now, NAND flash memory is selling at several times per chip what DRAM is selling for, and the process of converting a fab to flash is relatively cheap and simple so many of the DRAM manufacturers are converting their equipment to make the flash instead. The supply of DRAM is reduced and pricing trends upwards.

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