Prices for DDR2 chips have recently fallen to US$5.50 per chip from US$6.50-7.00 a month ago due to excess inventory, according to sources.

DRAM chipmakers are currently holding five to six weeks worth of DDR2 inventory, indicating that demand for DDR2 still lags supply, the sources said. In contrast, some Taiwan-based DRAM makers are holding only 10 days-worth of DDR.

Although Intel and DRAM chipmakers have been trying to push the adoption of DDR2, sources at motherboard makers say they still prefer to use DDR memory as they are not convinced that DDR2 can significantly decrease power consumption, and DDR2 is much more expensive than DDR.

Some market watchers are expecting chipmakers to continue cutting DDR2 prices next quarter to stimulate demand since chipmakers are unlikely to convert their capacity to other chips at this point.