DRAM Diversity Refreshes

That's a significant difference from just a few years ago, when memory makers produced one type of memory and pumped out DRAM chips using 100% of their manufacturing capacity. Excess inventory was sold on the spot market, often at a big loss to the memory makers.

The DRAM business is in some ways getting "de-commoditized" says Bob Merritt of Semico Research. Instead of simply competing on manufacturing efficiency, the memory makers now compete on anticipating the correct level of demand for the various types of memory they produce.

In January, Samsung and Hynix Semiconductor, the world's top two DRAM makers, each reported robust fourth-quarter profits despite the plunge in DRAM prices that pummeled some of their competitors.

Much of their success owed to strong sales of flash memory chips, which are used to store digital music and photos in gadgets such MP3 players.

Flash's success is also helping DRAM. With memory makers now fielding a mix of memory products that includes flash and various DRAM types, the odds increase that companies' supplies will be "out of mix," or short of a certain kind of memory. And in markets with that type of model, says Merritt, average selling prices tend not to decline as much.

"I think it should lead to, if not higher profitability, at least stabilized profitability, which by itself is a remarkable change in the business model for the memory manufacturers," says Merritt.

Truly Dynamic?

Standard & Poor's semiconductor analyst Tom Smith believes there's a chance for upside surprises at memory makers in 2006 as a result of the memory industry's changing dynamics. With more types of DRAM, said Smith, there are more submarkets, creating a cluster of supply/demand situations.

But getting a good read on the various submarkets and how they interact within the broader memory market is something the Street still appears to be grappling with.