DRAM shortage to spike enterprise PC prices

PC makers are likely to transfer rising cost of DRAM chips to enterprise customers, as shortage of component incurs manufacturer angst, say industry watchers.
Written by Kevin Kwang, Contributor

Enterprise personal computer (PC) customers should brace themselves for increasing prices dictated by rising component costs due to shortages, particularly in DRAM (dynamic random access memory) chips, according to industry watchers.

Bernard Wen, a spokesperson for AsusTek Computer, said that with the current high prices of DRAM, he is expecting the average selling price (ASP) for enterprise computers to increase as most vendors will transfer the spike in cost to business customers.

This is because the enterprise PC market usually works as a "pull model", where firms dictate the specifications of their hardware requirements and are more likely to foot the additional cost for component parts, Wen added in his e-mail.

The AsusTek spokeperson's perspective is echoed by Lillian Tay, principal research analyst at Gartner. She said that during "critical situations" where component shortages such as DRAM are acute, vendors will prioritize the parts for their commercial customers.

"Commercial customers, due to software application requirements, will need the memory regardless and will pay slightly more," she told ZDNet Asia in an e-mail.

However, Wen thinks this rise in price for the enterprise market will not be experienced in the consumer sphere. He predicted that the ASPs for PCs in this segment will likely be maintained, although PC vendors will probably adjust the hardware specifications of their offerings down.

In terms of product development, the high DRAM prices will also affect future product directions as PC makers will have to decide whether to stick with DDR2 SDRAM or go with a DDR3 SDRAM chip, which is expected to see a dip in prices in the future, added Wen.

Another Gartner analyst, Andrew Norwood, corroborated Wen's assessment when he was quoted by EE Times as saying: "With early April contract pricing up about 5 percent on the previous month for both DDR2 and DDR3 devices, this latest price increase has led some major PC vendors to cut content per box."

In the article, Norwood went on to note that PC vendors have been disgruntled about rising costs of DRAM for some time now, but are unwilling to change their product configurations for competitive as well as contractual reasons.

"The latest increase pushing the cost of 4GB (gigabyte) of DRAM to US$90 or more and close to 15 percent of the BOM (bill of materials) was the final straw [to drop DRAM content]," said Norwood.

That said, the reduction of hardware specifications is unlikely to appear anytime soon, the analyst added in the report. He noted that a major portion of the consumer PC market is driven by contracts with large retailers, and these contracts will have to be renegotiated before the content can be reduced.

"But once they are reduced, the lower content configurations will stay in place for a quarter at least," said Norwood.

Fellow Gartner analyst Tay had a different assessment. She pointed out that DRAM shortages are "part and parcel" of the industry adjusting to supply changes.

Furthermore, she has not heard of any PC vendor actually implementing less than the industry standard configuration, which she described to be 2GB and 4GB for basic and mid-range notebooks, respectively.

Gartner had earlier released its forecast for PC shipments. This is projected to increase 19.7 percent over 2009 to reach 366.1 million units this year, driven by corporate IT refreshes and strong consumer demand.

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