BEST PLACES INFLATION IS BACK

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MAY 24, 2004 I WWW.F0RBES.COM

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Don't Forget
The Memory
Good news for consumers and investors:
Memory chips will get faster, denser and cheaper.
i?r ARIK HESSELDAHL
I he microprocessors that power personal computers,
digital cameras and countless other gadgets would
be worthless without memory. Hard
drives as small as an inch in size are making
inroads in replacing chip memory, partial
larly in audio devices. Yet there's plenty of
business for everyone—since engineers t*
are getting better and better at squeez- / 256 MB. This year more than half of all sold
ing storage onto tiny chips or making
them work faster.
Vendors of dynamic random access mem-
ory (DRAM), the main memory in personal computers,
will sell $23 billion worth of chips this year, up from $17 bil-
lion last year, according to analyst Nam Hyung Kim of ISuppli,
an El Segundo, Calif, market research firm. For the moment
Double-Data Rate DRAM (DDR) is the dominant format. DDR
chips move two bits of data with every clock cycle, which is
like the heartbeat of a chip. The format's next generation, due
later this year, will handle four bits of data with each cycle,
while DDR3 will handle eight bits of data—that's one whole
byte, the equivalent of a character of text—and should start
appearing on the market in late 2006. Of course, consumers
will need new motherboards or entirely new electronic devices
to take advantage of this faster memory.
Prices are also falling on flash memory (the chips used
in mobile phones and digital cameras). For the type of flash
used to store pictures on digital cameras and songs on
music players, market leader Samsung recently slashed prices
30%. That's ultimately going to force others like Toshiba and
Renesas to cut prices, too.
They'll make it up on the volume. "Their plan is to push con-
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sumers up the density curve," says ISuppli
analyst Betsy Van Hees. "For consumers $50
is the magic price." That's just a bit less than
what it costs for a 256-megabyte memory card
from SanDisk or Lexar Media. Dropping prices
across the board will spur consumers to splurge
on 512-MB and 1-gigabyte cards. Last year a third of
the flash memory cards sold came in densities of
will be either 512 MB or 1 gigabyte, Van Hees
says. If that trend holds, more than 80% of
the flash card market will be for cards ranging
in capacities of 2 gigabytes and higher by 2008.
And by that time market conditions should
boil down the confusing number of storage for-
mats. While CompactFlash cards (the match-
book-size cards used in most digital cameras) make up the bulk
of the market now, watch for the Secure Digital Memory card
(now used in some digital cameras and in PalmOne handhelds)
to surge in popularity, growing in unit shipments at a com-
pound annual rate north of 60% over the next five years,
according to ISuppli.
The market for the other kind of flash, two-thirds of which
goes into mobile phones, is in flux, too. Four years ago Intel
decided it would focus all its efforts on selling to mobile phone
vendors. That provided an opening to Advanced Micro Devices,
STMicroelectronics and others to go after customers in the
broader market that Intel didn't want. Now Intel has reversed
course and is fighting back with price cuts.
Aren't crashing prices bad for producers? Not in the mem-
ory chip market, which enjoys wonderfully elastic demand.
Each price cut persuades consumers that they need more. F