DRAM Diversity Refreshes

Some analysts are predicting a shortage of DDR2 DRAM, the most common type of DRAM for PCs, as a result of the industry's recent shift of manufacturing resources toward NAND flash.

The explosive demand for flash memory, along with its beefy profit margins, prompted Samsung and Hynix to convert some of their DRAM manufacturing capacity to flash production last year.

Now, with fewer resources for producing DRAM available, prices are on the rise. Recently Samsung reportedly raised its contract prices with major customers. And DDR2 prices on the spot market have risen roughly 7% in the past month, according to DRAMeXchange.

What's unclear is whether factory resources will be reallocated toward DRAM production in order to ease supply constraints. iSuppli's Kim says the big memory makers have already begun converting production capacity back to DRAM from NAND flash.

The net result is that DRAM prices will soon head south again, Kim wrote in a recent report, maintaining the firm's neutral rating on the DRAM market.

"For suppliers, many of which sell both DRAM and NAND flash, the memory business is turning out to be a zero-sum game in the first quarter," said Kim.

Merrill Lynch analyst Simon Dong-je Woo is skeptical that capacity will be reallocated toward DRAM because margins for NAND flash remain so much more appealing.

Moreover, converting flash equipment back to DRAM production isn't easy, he said.

"Our analysis clearly suggests that it would be far superior to raise DRAM prices this time around than to opt for the risk and opportunity from shifting NAND capacity to DRAM," Woo says of the memory-chip companies.

Whichever way the DDR2 supply situation shakes out, it's clear that the memory makers are playing by a new set of rules.