Prices for "mainstream" DRAMs—512 megabit double data rate 2 parts—have plummeted since January, says Brian Matas, vice president of research for IC Insights, a market researcher in Scottsdale, Ariz.

"I am floored. Prices have fallen more than 50%, 60%, and 70% for leading-edge DRAMS. They went from about $5.00 to $1.75 for some parts," he says.

The average price for all density DRAMs dropped from $4.70 in the fourth quarter of 2006 to $2.63 in April.

Tony Rakoczy, vice president of commodity management for electronics manufacturing services provider Celestica in Toronto, says excess global capacity and softening demand has resulted in the price declines. He says DRAM demand was expected to rise because of some new product launches, but the extra demand never materialized. "The new capacity expected to serve the incremental demand has come on-line and appears to be excess," says Rakoczy, adding that he feels the price declines have hit bottom.

Matas agrees and says second-half DRAM demand will increase and prices will bump up a bit. By the fourth quarter, the average price will be $3.45, according to Matas.

Although prices fell in the first half, unit demand was strong and will remain healthy. For the year, DRAM unit shipments will rise 22%, according to IC Insights.

DRAM prices have fallen over the last six months, but will stabilize and bump up a bit later in the year.

Despite slow growth in 2007, the DRAM market will post steady growth through 2011.

"DRAM manufacturers used that money to invest in new capacity," says Matas. "A lot of the capacity is in the form of brand new facilities owned by Taiwanese DRAM makers." And a lot of the new capacity uses 300mm wafers and 90nm and smaller process geometries, he says.

"Not only are they adding more capacity in terms of more facilities, but also bigger wafers and smaller process geometries which produce more units," says Matas.

He says by moving to 300mm wafers from 200mm and from 90nm to 70nm process geometries, 60% more die are produced per wafer. That enables DRAM manufacturers to lower prices although margins are thin.

DRAM manufacturers are willing to cut prices and live with thin margins because they are fighting to grow market share.

"To increase market share 3–5%, a company will invest in capacity and build and sell more parts," Matas says. "With one company that has little impact, but when there are five DRAM companies doing it, there is not enough market share to go around." Manufacturers then reduce prices to grow share or to keep what share they have.

Buyers should also keep an eye on the migration to higher density parts. "Right now, the emerging density is 1 gigabit, although the 512 is the high-volume runner at this time," says Arun Kamat, vice president of marketing for Hynix Semiconductor in San Jose, Calif. "That's where the prices have plummeted the most and DRAM manufacturers are moving to 1 gigabit. It is coming on slowly but surely," he says.

In fact, manufacturers may speed up the transition to 1 gigabit devices because they carry higher price tags and have higher margins than 512 Mb devices.

The top DRAM density is 512 megabit accounting for about two-thirds of all units shipped.

A longer term trend to watch is the move to DDR3 parts. "In terms of development activity, we are seeing some major OEMs looking at it," says Kamat. "There is a lot of interest because there are benefits to DDR3 interface." Those benefits include lower power consumption and faster data transfer rates. DDR3 would have a clock rate of 800–1600 MHz compared to 400–1066 MHz for DDR2.

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