Part of the sea change comes from the fact that excess factory capacity is finally getting soaked up. Japan's Fujitsu and a series of smaller Taiwanese manufacturers exited the market for PC memory or curtailed production in recent months. Toshiba sold its US DRAM facilities to Micron Technology in December, which could further curb production, some sources said. Hynix, the world's third largest manufacturer, is trying to sell facilities too. "There has been capacity that has come off-line," Micron Technology spokesman Sean Mahoney said. Bit production, the number of memory cells produced worldwide, may only increase 40 percent to 45 percent this year, to 4.2 billion to 4.5 billion bits. Demand, though, is expected to grow by 55 percent. "The supply side is fixed," Quinn said. "If (further) consolidation happens, supply will be constrained. Otherwise, we will see 40 percent to 45 percent bit growth." The motives of manufacturers have changed as well. In 2001, some manufacturers appeared to be dropping prices to gain market share or other advantages, said Jim Sogas, vice president of sales for Elpida. Now the pressure has abated. The growing popularity of DDR DRAM is also buoying optimism as manufacturers can charge more for it than standard SDRAM. Although the memory had been featured in PCs containing Advanced Micro Devices' Athlon processors, manufacturing DDR remained a fringe business until last December when Intel released a chipset, the 845, that allowed PC makers to match Pentium 4 chips with the faster memory. The 845 proved to be a tidal wave. PC makers and motherboard manufacturers began to stock up on DDR DRAM, driving the price of DDR up rapidly. In reaction, prices began to climb on SDRAM. Customers began to worry that too much factory space would be shifted to DDR, so they bulked up on SDRAM. In December, Samsung managed to raise prices on large orders to PC manufacturers, Quinn said. It was a symbolic rise, but was followed by subsequent hikes from Samsung and others. DDR popularity isn't expected to abate, either. In 2001, the memory accounted for less than 5 percent of Samsung's output. In 2002, it will account for 35 percent to 40 percent, while Rambus output will drop to 10 percent from 20 percent to 25 percent. Manufacturers are also working on faster versions, called DDR 2 and DDR 3, according to documents from Elpida. Finally, PC makers helped buoy prices by cramming their computers with unprecedented amounts of memory during what proved to be a fairly healthy holiday season. "We saw notebooks shipping with 1GB of memory," Tabrizi recalled. "The introduction of Windows XP also helped," as the new OS requires more memory than its predecessors to run smoothly. However, manufacturers can easily start putting less memory in these boxes if the price continues to rise. When memory exceeds 8 percent of component costs, PC makers generally cut back, Quinn said. Indeed, Emachines' senior vice president of marketing, Bob Davidson, said the budget PC maker is already cutting back on memory because customers don't place a high value on it. When they are buying PCs, they notice that memory is cheap and refuse to pay extra for it. Instead, Emachines is looking at increasing hard drive sizes, another cheap upgrade but one consumers will pay for.
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