PC prices heading for aftershock?

Are low PC prices in jeopardy? The jury is still out, according to analysts, but a confluence of events could make for a tough fourth quarter.

Are low PC prices in jeopardy? The jury is still out, according to analysts, but a confluence of events could make for a tough fourth quarter.

Dynamic RAM prices, which have been inching up since July, have spiked since the earthquake that rocked Taiwan on Sept. 21.

This summer, a 64-Mbit DRAM module, which contains 8MB of RAM, could be found for about $6, or $.75 per megabyte, on the open or "spot" market.

Since July, however, those prices have inched up and are now more than three times higher than the summer's prices. The same RAM module is now selling for between $18 and $20, analysts say.

The increases have caught many computer users who are looking to upgrade by surprise. One ZDNet reader recently complained that a 128MB memory module that would have cost around $100 this summer is now priced at about $350.

He's not suffering alone.

Demand driving prices
However, Dean McCarron, principle at Mercury Research Inc. in Scottsdale, Ariz., says that the price increases aren't completely out of the ordinary. They have to do with an increase in demand from PC makers.

Recently, after a long period of oversupply in which memory makers were forced to cut prices to stay competitive, demand for memory has risen. Need for the hardware has again begun to outstrip supply.

While the Taiwan earthquake has had some effect on memory prices, the majority of the production capacity for memory resides elsewhere, including Japan and Korea.

Many of those companies are working to add new manufacturing capacity, after putting those plans on hold during their stint in the price doldrums. Samsung Electronics, for example, is expecting to complete a new fabrication plant next spring.

Indeed, worldwide sales of semiconductors jumped 22 percent year over year in August 1999 to $11.96 billion.

"As we enter the fourth quarter, we are witnessing our first double-digit annual growth since 1995. In addition to PCs, the semiconductor market recovery is being driven by communications products, the pervasiveness of the Internet and the e-commerce explosion," George Scalise, president of the Semiconductor Industry Association, said in a release issued Friday.

Scaled-down systems?
Many PC shoppers want to know whether this will affect PC prices.

"It certainly could lead to that," McCarron said.

What's more likely to happen, however, is that PC makers will scale down their systems, decreasing the amount of memory offered in a standard PC configuration. Instead of offering 128MB of RAM in a high-end system, a PC maker might offer 96MB, he said.

When asked if Dell Computer Corp. (Nasdaq:DELL) expects to see price increases on its PCs in the near future, due to memory prices, a company spokesman said, "No. We don't see a real change in our (pricing) strategy."

The situation is likely similar for other top-tier PC makers, who have negotiated contracts with memory makers to purchase large volumes of memory for set prices.

"Typically the vendors that are affected last (by component price increases) are the top-tier ones," McCarron said.

For the long term, however, things are much more up in the air.

Dell 'assessing' Taiwan situation
Like many PC makers, "we're still assessing the situation in Taiwan," the Dell spokesman said.

That's where the real concern lies. While analysts are also still busy assessing the situation in Taiwan, many PC system components, including motherboards and graphics processors, are manufactured there.

Earthquake-related production slowdowns could limit fourth-quarter PC growth.

"We may find that there is difficulty in delivering those products, all of which are critical to building a system," McCarron said.

While Mercury, among others, is still assessing the situation, McCarron added, "One thing that is clear is that the Taiwanese market is going to have an impact on the number of units shipped in the fourth quarter."