Prices plummet; buyers to benefit

Federal PC shoppers this summer will find that computers are loaded with far more memory at lower prices than ever before. Just a year ago, the typical PC had 8M of dynamic RAM (DRAM) installed, but now 16M is looking skimpy as many federal buyers opt for 32M.

The reason? DRAM prices have collapsed in just a few months, to as low as $7 per megabyte now, compared with $30 last year, according to Jim Handy, a memory analyst for Dataquest Corp., San Jose, Calif.

The price of DRAM fell 30 percent in just one recent six-week period, according to Theresa Garza, vice president of government sales for Dell Computer Corp. As a result, Dell is installing 16M of DRAM on all its PCs and will upgrade federal buyers to 32M for less than $100.

"If somebody is selling 16M of DRAM for more than $100, they are keeping the profit, or they bought it 90 days ago when the price was higher," she said.

The plunge in memory prices is producing some big dividends for federal PC buyers, either through major improvements in system performance or major cuts in computer prices.

"We are working this issue pretty hot and heavy right now," said a PC buyer in the Defense Department's Command, Control, Communications, Computers and Intelligence Integrated Support Activity. "Our contract vehicles can't keep up with price cuts."

As a result, DOD is buying DRAM with government credit cards - instead of off contracts - to save money. DRAM for a new server would have cost $3,500 on a contract but was only $600 on the open market.

The lower prices make upgrades for old PCs more attractive too. "It didn't make sense to buy more DRAM before, but now we can go get more for a good price," the DOD buyer said.

Customers will find a significant performance improvement running regular productivity applications when they upgrade from 8M of DRAM, but the difference between 16M and 32M is smaller, according to George Fuster, president of International Data Products Corp.

In tests run by Sysorex Information Systems Inc., for example, PCs running Microsoft Corp.'s Windows 95 were 10 percent faster with 32M instead of 16M; running Windows NT, they were 14 percent faster.

Many of the buyers who opt for 32M will do so in anticipation of installing Windows NT when Version 4.0 comes out later this year.

"From a strategic perspective, we are looking at Windows NT," Garza said. In the meantime, she said, "you can run a bunch of memory-hog applications."

If they do not want the extra memory, buyers can enjoy lower purchase prices, thanks to the less expensive memory and the continuing drop in hard disk drive prices. That let Sysorex cut $300 off the price of a 133 MHz Pentium PC on its PC-1 contract recently, executive vice president Bob Guerra said.

In fact, prices have fallen so rapidly that some vendors are finding it difficult to cope. Dell and Gateway 2000 Inc., which build PCs to order instead of filling a distribution channel with inventory, are able to react more quickly than others, said Gary MacDonald, vice president of marketing for Kingston Technology Corp., a Fountain Valley, Calif., memory supplier.

Because of that advantage, these companies are running promotions that actually encourage customers to buy 32M of DRAM.

"There is no question the PC companies are going to be putting more memory in PCs," MacDonald said. "But whether [Dell and Gateway] are an indication of where the market is going remains to be seen."

The big question for buyers and vendors now is where prices will head in the future. Most observers never thought prices would fall this low when they started heading downward six months ago. Now, they say, prices have hit rock bottom.

"The question we are asking is if and when the price decreases are going to stop," said Tony Colangelo, marketing director of Government Technology Services Inc. "DRAM pricing is one that doesn't always go down."

The end of the pricing free fall is near, predicted Dataquest's Handy, with prices holding steady for the rest of the year and possibly creeping up a little early next year.

But the memory market is notoriously unpredictable, so some observers are urging customers to take advantage of current low prices.

"I wouldn't be surprised to see [memory manufacturers] force a shortage," Guerra said. "People ought to take advantage of what they can get today."

Memory manufacturers will cut back on production to trim supply in an effort to steady prices, MacDonald said, and that could happen later this year.

Most of the companies that make DRAM chips have delayed plans to build new plants that are already on the drawing board, according to Dick Greene, manager of market statistics for Semiconductor Equipment Manufacturers International.

"Most of them are putting things on hold until the dust settles," he said.

For many federal buyers, the question of whether to fill new PCs with inexpensive RAM or buy computers for lower prices will depend on their procurement vehicle and applications. Many indefinite-delivery, indefinite-quantity contracts have set prices, for example, so vendors will likely pack as much technology as they can afford into those PCs. Buyers who choose from IDIQ contracts will therefore get more memory on the systems they buy this summer. GSA schedule prices, on the other hand, are free to fall, so buyers will spend less for the same configuration now than they would have several months ago.

"We are maintaining our price, but we continue to offer the highest technology we can," Fuster said.

IDP sells notebooks on several major contracts, and "a lot of our GSA orders are going out with 32M [of] DRAM," Fuster said.

Future events will only fuel the need for memory. When Windows NT 4.0 ships to customers this fall, MacDonald said, its need for more RAM, allied with the lower prices, will definitely drive memory demand.