Memory On The Margin

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The consensus seems to be no recovery until 2002, and further, gradual erosion of prices until then.

Problem with the forecast is that memory prices operates on the margin. Most production is sold to big OEMs at relatively stable prices, then what’s left is tossed out on the spot market.

So the spot market on memory is only about 10-15% of production. Even minor variations in OEM demand can radically change memory prices on the spot market.

If the OEM take about 5%-10% less RAM than they usually do (which seems to be the case right now), instead of having 10% of RAM production on the free market, you have 15-20%. That means there’s 50-100% more RAM available in the spot market channel than otherwise, and that gives you a glut and plummeting prices.

Works the other way, too. If the OEMs take more RAM than expected (or supply gets constricted a little); instead of 10% of RAM production being available, it could be just 5%. That means there’s only half the RAM available in the spot market than otherwise, and that gives you a shortage and skyrocketing prices.

For instance, when we had that Taiwan earthquake a couple years back, essentially about 5% of RAM production got suspended for a little while. But with Christmas coming, that was enough to double RAM prices almost overnight.

If some manufacturers shut down enough plants to reduce production 5-10%; this would do the same thing. Now nobody really wants to do that because those that do will likely end up short-handed in any upturn; but a couple of the smaller guys might not have any choice.

So that analyst prediction is probably pretty accurate provided something doesn’t come out of the blue.

Mind you, that “something” doesn’t necessarily have to be too legitimate, either. The memory manufacturers are hurting pretty badly right now, and most are probably looking for any half-decent excuse to raise prices.

For instance, it wouldn’t shock me that if the PIV/SDRAM combo took off, we’d see at least the attempt to get prices higher, across the board.

So if you decide to play the waiting game for memory, there’s much more of a chance it can blow up in your face than with other computer components.

Of course, the last few months, it’s been blowing up in the faces of those who bought sooner rather than later.

All in all, it’s a risky game.

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