The majority of DDR400 output is being snapped up under contract by major OEM buyers, industry sources said, leaving smaller quantities available for the spot market. Online broker DRAMeXchange.com Corp. estimates white-box PC makers, which heavily patronize the spot market, have to pay as much as 16% above DDR400 contract prices.

OEM contract prices negotiated in July ranged from $4.30 to $4.80 for 256Mbit DDR400, while spot market tags for the same density this week were between $4.60 and $5.60, according to DRAMeXchange, Taipei.

Jim Sogas, vice president of sales and marketing for Elpida Memory (U.S.), Santa Clara, Calif., said most major PC customers are moving rapidly to DDR400. The ensuing demand is troubling some white-box PC manufacturers, which are eagerly seeking access to the higher-speed main memory chips in an effort to keep pace with their Tier 1 competitors.

Farhad Tabrizi, vice president of worldwide marketing for Hynix Semiconductor Inc., agreed that DDR400 is carrying a premium in the spot market and said memory vendors are hard-pressed to meet demand from their OEM customers -- let alone stock the spot market.

"There are two different market dynamics for DDR400," said Jim Elliott, senior DRAM product marketing manager for Samsung Semiconductor Inc., San Jose. "The spot market is reacting to a much smaller supply, and the contract market is experiencing a huge uptick in demand, which we are going to great lengths to meet."

The tight supply of DDR400 in the spot market has been compounded by instances of traders holding back inventory in the hope prices will continue to rise in the second half of the year, said Nam Kim, DRAM analyst for research firm iSuppli Corp., El Segundo, Calif.

The DRAMeXchange wrote in a recent report that, "Spot marketers feel the limited supply from DRAM makers and are selling conservatively in order to keep sufficient stock for higher margin in the coming weeks."

Brokers expecting to cash in later this year might be disappointed, however. Matthew Godfrey, an analyst for Semico Research Corp., Phoenix, said he expects "the premium for these parts to decrease in 2H '03. The DRAM vendors have more than enough capacity to meet the forecasted demand in 2003."

Interestingly, the spot premium for DDR400 started to narrow last week -- down from a high two weeks ago of 38% -- but only because the prices of older DDR266 and DDR333 SDRAM have been rising. Contract DDR400 prices also have carried a price delta relative to DDR266 and DDR333, but are now moving closer to parity.

Mueez Deen, Samsung Semiconductor's director of DRAM and graphics memory marketing, said the DDR400 premium cannot get too high or else PC makers will simply cut back on the amount of memory they ship per box.

"Traditionally, main memory accounts for about 8% to 10% of the total box cost," he said. "If DRAM prices increase beyond that ratio, customers will go to a lower megabyte memory size per system."

Something like that may be happening already, according to observers. DRAM vendors had hoped that Intel Corp.'s new dual-memory-channel Springdale chipset would lead PC makers to double the memory content of their systems. However, Elpida's Sogas said many companies are maintaining capacity at 512Mbytes per box by splitting the capacity into 256Mbyte chunks across each channel. PCs designed for the gaming and so-called enthusiast markets are proving to be the exception, according to DRAM vendors.

With demand so strong for DDR400, suppliers said they expect sales to mushroom in the second half of 2003.

Samsung, the predominant global supplier of DDR400, said sales should soar as PC makers gear up their systems for back-to-school and holiday buyers.

Hynix's Tabrizi said PC makers will switch rapidly to DDR400 in the second half, with the new speed grade accounting for 40% of all DRAM sales by the end of the year.

By: DocMemory
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