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Toshiba Latest Casualty of DRAM Price Wars
Tsar writes: "ITWorld.com tells the story: Toshiba is getting out of the DRAM business. They had 6.2% of the world market last year, but soon their Manassas, VA facilities will belong to Micron, the Yokkaichi plant's DRAM production will be reduced to a trickle, and Toshiba will be out of the commodity memory market. Guess you can sell DRAM for a hundred bucks a gigabyte, but you can't make a living at it yet."
RAM prices are at obscene low levels right now (not that I mind)... will it stay this way or is there really a manufacturing glut right now? Another question is why would manufacturers price their memory to lose money and go out of business? Yeah, sure, cheaper is cheaper, but couldn't the companies that charge higher prices tout some feature? Like, higher reliability or better failure rate or some shit? Mostly PR, but can boost your sales.
Another question is now that a semi-major chip supplier is going out of business, will prices jack up overnight?
Ok, enough deepish thinking it.
Vote monkeys into Congress. They are cheaper and more trustworthy.
It looks like companies really are finding out the hard way, that just because a market is really expensive to enter
:)
(A 'chip' factory is definitely one of the most expensive things you can build) that hasn't prevented savage competition when it was profitable.
Then the market saturates, and people stop buying. Prices crash, and that really expensive factory you bought is a white elephant.
Course, that doesn't stop me feeling all enthusiastic about 4Gb of RAM in a desktop
Toshiba didn't have much going on in the ram market for a while now...
Check out the toshiba pieces up on pricewatch to see what I mean.
Wonder when we're going to see the DRAM market bottom out.... soon as enough people drop out of it I guess.
-Berj
Why I remember when we used punch cards too and we programmed on the BARE METAL! Why we were lucky to have an ASSEMBLER or a punch card!
Why you kids NEVER had it rough!
Karma whorin' since 1999
DRAM is a funny product. Market analysis is harder because the demand for it is not governed by your "ordinary" factors. For a start, it doesn't wear out half as fast as you might expect (particularly if you compare its failure rate to the average lifetime of a home PC). Demand in recent years has been similar to that for mobile handsets - the technology matures and people want it... until they *have* it, then they don't need any more.
If you imagine that every household didn't have an electric jug kettle, and someone suddenly invented it and sold it at an affordable price... well you get the idea.
DRAM is in over-supply because it's one of the only silicon products which has a huge domestic market. My company makes telecoms base-station hardware, and we have next to no DRAM on our boards - it's all SRAM and fast DPRAM embedded in ASICs. The demand for *those* is easier to analyse because the market is steadier and less "faddy".
Shame they couldn't put the plants they're closing to better use though... it's not like there aren't more exciting designs around the corner waiting to be spun...
These sigs are more interesting tha
I know, it's hard to click on that link, we're all guilty of it sometimes.
They're selling the plant, intact, to Micron who will continue to produce chips out of the plant, they'll just have a different name stamped on them.
The supply isn't going anywhere, and I doubt seriously that this sale will have any noticible impact on RAM sales.
"You worthless post!"
-Shakespeare, 2 Gentlemen of Verona, 1. 1. 147
According to this story Micron's not exactly picking the money trees either.
One interesting tidbit from that article to give you an idea just how much the DRAM market has turned - Micron recorded a record $625-million loss for its entire 2001 fiscal year, which came after a record $1.5 billion profit in fiscal 2000.
So I wonder if it's not that Toshiba wasn't doing ok (relatively speaking) but rather that they didn't have the pockets (or desire) to hang in there to watch it turn back (as one would expect it to in time).
-- "Ignorance more frequently begets confidence than does knowledge." (Charles Darwin)
RAM may be more usefull, but my big ole block of gold will not be made worthless by DDR GOLD, GOLD 2700, or the ever overpriced RD-GOLD.
The problem with RAM price flux is that the price always does go back up, but often it is the result of a new RAM product entering the market (pc100, pc133 ect) rather than the old stuff shooting up in price (although this does happen some). This makes it very hard to arbitrage (buy low, sell high) the ram market, because you buy the old stuff low, and when the market jumps it is for the new stuff (meaning you get stuck holding the old RAM).
So, Micron really needs to get their products out to the market faster. I hope they've got it out before I build a new computer for my parents.
Employee of Inrupt, Project Release Manager and Community Manager for Solid
"Toshiba is not alone in wanting to exit the **commodity** DRAM market. Earlier this year NEC Corp. said it would end DRAM production by 2004 and transfer all operations to Elpida Memory Inc., a joint venture formed with Hitachi Ltd. to insulate the two companies from the cyclical swings of the market."
//emphasis mine
Well, there you have it; a perfect example of classical economics. Whenever you have a particular market where profits are above normal (excess earnings after you pay your overhead), competitors will enter the market place. As more competitors make more product, the supply of the product increases (shifts the supply curve right, for all you Econ buffs) and pushes prices down. That's all and dandy but it doesn't last forever. Because prices are pushed down (and profits back to normal or below), competitors/entrepreneurs/Toshiba will exit. It makes sense. Why stick around?
Be careful folks. As this model suggests, as supply decreases, the price will rise. Exiting an industry preludes price increase; it's inevitable.
The submitter of the story makes the observation that you can sell RAM for 100$ a Gig, but you can't make a living doing so. I think this important because it really sets up what we as the consumers need to know, how much do you have to sell RAM for to make a living. From the looks of it - with Toshiba and Micron both losing money - the market is selling below cost. Does anyone know enough about the manufacturing process to offer an educated estimate as to how much these chips cost to create. We really need to know this because market consolidation will only go on for so long before the major players (Micron, Samsung) decide that losing money isn't cool, stop buying up floundering competitors, and start making money again. A little price war isn't so bad because it allows the market to patrol it's self. Eventually though, this will wear off, and we as consumers should be aware of where the market is going so as to not be completely floored when the price bounces off the roof.
What would make you think RAM prices would come back up again? RAM prices have been falling continuously since the beginnings of Moore's Law decades ago. Next thing you know, you'll be telling us to buy pentium IIIs before "the price rockets back up again."
Not that there aren't temporary fluctuations in the price of RAM, but the overall trend is down, down, down.
"Any connection between your reality and mine is purely coincidental." -Slashdot
I sure hope this doesn't leave to increases! Crucial had 128MB for 30 bucks last I checked!
And the people shall be oppressed, every one by another, and every one by his neighbour Isaiah 3:5
"DRAM Manufactureres are losing money on every chip they sell".
Well THAT'S a load of bullshit. Then why are they selling?
"We'll sell you a million of them. That'll cost us a $1,000,000, but let's do it anyway."
It's NOT true.
Chip manufacturers MAKE money each time they sell a chip. And if they sold enough chips, they'd walk away with a tidy profit. And - SURPRISE - they do!
The problem is that they've expended lots of money building new fabrication facilities, and then, whoops!, the PC economy takes a hit. It isn't that DRAM prices got more expensive - it's that they over-invested in fabrication. And let me tell you - the plants themselves aren't the most expensive part - it's the people and managers that run them.
What's the answer? To sell off the facilities to those who won't be competitors. Heck, why sell something good to a competetor? Therefore, the entry into "vertical markets" by the likes of Toshiba, selling off the facilities to Micron. As long as there is no competition between partners, they're happy.
So what does this mean to DRAM prices? They might fluctuate a little, but the trend will continue downwards as real manufacturing costs are lowered and the technology improves.
In terms of market structure, prior to Toshiba's divesture I think 4 companies produced about 80% of the world DRAM supply. Is this level of concentration sufficient to maintain collusive behavior? It all depends.
In one commonly used model of price wars, the memory chip market is in fact collusive. A key assumption is that firms cannot perfectly predict demand conditions ahead of time. Suppose that you and I are the only two producers, and we agree to the following arrangement. In period 1 we both will charge $1. If at the end of period 1 the realized price is $0.90 or greater, we charge $1 in period 2. If it is less than $0.90 cents, we begin a punishment phase in period 2 and charge our marginal cost (and earn zero profits). The realized price may differ from the ex ante declared price because of weak demand for the product or because of cheating. Finally, if the punishment phase has been in effect for 3 periods, we then revert to charging $1; in other words, the punishment lasts 3 periods.
This may in fact characterize the DRAM market. Because of a fall-off in demand for memory late last year and into this year, prices plummeted. Hence, the four DRAM producers began a punishment-phase price war. In the past several months demand for PC's and DRAM has stabilized somewhat, and the firms (ex post) realize this. The price war is now over, and the firms are returning to a high-demand stage where the higher collusive price is charged.
Perhaps this sounds implausible to you, but in fact it is one of the most common models of collusive behavior in the economics profession. Of course, I've left out a ton of details, but the main point is clear: firms in an industry cannot perfectly observe demand, and so falling prices (whether due to low demand or actual cheating) must result in punishment. Once the punishment phase is over and demand returns to its normal level, the higher cartel price can again be charged.
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"...but soon their Manassas, VA facilities will belong to Micron..."
I have quite a few friends who work there, and the japanese never really seemed all that great at managing Americans in a factory environment. Hopefully Micron can do better...
I find it fascinating that DRAM can be had for $100 per GB these days. I remember buying 1 MB SIMMs for $100 apiece 10 years ago.
The really interesting part is that magnetic drive storage capabilities have risen and the costs decreased over the past 10 years, too.
Otherwise, if we had 1990 vintage hard drives and costs, the DRAM would look real tempting to use as an artificial "hard drive", albeit with doodads to keep it powered up full-time.
So, 10 years from now, when 1 TB DRAM sells for $100, will disk drive technology have kept pace?
"Provided by the management for your protection."
And they'd better be careful of games like that- too big of a price spike and nobody will really buy memory. If nobody really buys memory, they don't make the profits they thought of, etc. I suspect that memory will maybe go up half again or double itself in price, but not too much more than that. It'll push things out of control the other way for them.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
Guess you can sell DRAM for a hundred bucks a gigabyte, but you can't make a living at it yet."
Give the DRAM away for free, and sell support for it.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
I've bought a pile of EDO 32 megs when it was worth near nothing, for maxing out my older PCs, now I sell them for 3 or 4 times as much on ebay :) I've bought a load of 512MB ECC DDR when it was worth next to nothing a few months ago.., it's already doubled back :) hell, f** the .COMs :)
Seriously, it's always the same curves every year for the memory, end of the summer, prices at their lowest, a month before xmas, "something happens" and the prices jumps back (xmas sales being the non-official reason).
--- Metamoderating abusive downgraders since my 300th post.
You are woefully misinformed. Micron doesn't want to sell below cost, they have to do that to maintain market share. Micron will definitely put smaller competitors (like Toshiba or TI) out of the business if they can, but they aren't as nefarious as you make them out to be.
The problem is there is too much capacity. Eliminating most of Toshiba's capacity will help, but not a great deal. There is simply no demand for new PCs (which is where most DRAM goes and you can check Gateway and Dell's performance if you doubt me) and without that driving the industry (as it did in 1999 & 2000) you're going to see over production. This results in higher inventory levels which represent tied up capital. So, either you sell the inventory at what the market is paying to free up operating cash or you lay off people and try to hope that your competitors will also slow down production and not steal your market share.
Since everyone at Micron making over $60K a year just took a 10% pay cut and the executives aren't getting paid, I'd say that they aren't doing this just because they weren't getting the profit margins they wanted.
The real problem with the DRAM market is that Hynix (who is also in negotiations with Micron) owes 7 Billion dollars on 2 Billion worth of assets refuses to go into bankruptcy. They continue to sell at even higher losses than Micron and Samsung racking more and more debt.
Firms sell at a loss when they lose less by selling than by sitting idle. If my choices are to sit still and lose two billion from my idle plant that I'm stuck with, or to pay another half a billion to produce a billion and a half in revenue, I choose the latter, losing one billion instead of two.
hawk, economist
One of the great breakthroughs was when memory prices dropped below "a buck a byte"--for the monthly rental . . .
hawk
As players jump off the memory bandwagon, competition will decrease. When that happens, surviving manufacturers will have no reason to keep the prices low. I suppose it'd be a good idea to buy up RAM now.
Why bother.
I just got a box of RDRAM from Dell today to upgrade a bunch of my clients servers. How funny is it that not only are they using Rambus (blech), but that they are buying it from a company that is getting out of the business.
Ummm, Jon, aren't you supposed to be dead...? - Otter(3800)
Hi!
In other words, there is a price war going on. And, if ITWorld's sources are correct, there is at least one producer who is making money manufacturing DRAM at these prices. Given that Micron is buying the DRAM plant (and running TV ads selling DRAM via Crucial), it seems clear that Micron a) thinks they can make money in the DRAM business, and b) thinks that they can use that plant in Virginia to make DRAM more competitively than Toshiba did.
Two points:
Hmmm...we had a temporary, but fairly significant, rise in memory prices what, about two years ago? Whenever I was building my personal SMP webserver, anyway. I remember being annoyed that I could've saved a few dozen dollars if I'd bought the memory a few months earlier.