A significant global shortage of memory chips is prompting intense competition among companies in the artificial intelligence and consumer electronics sectors, as the cost of this crucial data storage component rises dramatically.
In Japan, electronics retailers have started to enforce limits on the number of hard drives each customer can buy.
Chinese smartphone manufacturers are raising alarms about potential price hikes. Major tech players like Microsoft, Google, and ByteDance are working hard to secure their supplies from memory chip producers such as Micron, Samsung, and SK Hynix, according to various sources privy to the negotiations.
This shortage affects almost all types of memory—be it flash chips for smartphones or advanced high-bandwidth memory (HBM) utilized in AI data centers.
Some prices have surged over 100% since February, leading market traders to speculate that a prolonged upswing in prices may persist.
The implications of this situation could extend beyond the tech world. Economists and industry leaders are warning that enduring shortages might hamper productivity gains driven by AI and postpone significant investments in digital infrastructure.
Inflationary pressures may rise as various nations seek to manage price increases in the wake of U.S. tariffs.
“Memory shortages have transitioned from a mere technical issue to a major economic concern,” noted Sanchit Vir Gogia, head of a technology advisory firm. The ongoing development of AI is “colliding with supply chains that can’t fulfill physical needs.”
An investigation by Reuters into the unfolding supply crisis involved talking to around 40 individuals, including 17 executives from semiconductor manufacturers and distributors.
This situation reveals that the industry’s attempts to meet the skyrocketing demand for advanced chips, driven largely by NVIDIA and other tech giants, are creating a complicated dilemma. A shift towards high-value memory products has disrupted the supply chain for smartphones, PCs, and other consumer electronics, even as chipmakers are struggling to meet the demand for high-end semiconductors in the AI arena. There’s a sense that some companies are racing against time to adjust their strategies.
For the first time, insights into the global rush and pricing pressures faced by high-tech firms, as relayed by Chinese and Japanese electronics retailers and suppliers, are coming to light.
According to TrendForce, the average inventory levels of dynamic random access memory (DRAM) used mainly in PCs and mobile devices have sharply decreased, going from three to eight weeks in July to only two to four weeks by October.
The situation is developing as investors question whether the vast sums invested in AI infrastructure have led to an inflated bubble.
Some analysts suggest a market shakeout, with only the larger, financially robust companies likely able to endure escalating prices.
A memory chip executive warned that the supply crisis could delay future data center initiatives. Building new capacity will take a minimum of two years, yet chip manufacturers are hesitant to ramp up production too significantly out of fear they could end up with excess inventory once demand stabilizes.
Both Samsung and SK Hynix have announced plans for increased production capacity but have not provided specifics on how they will balance HBM versus traditional memory manufacturing.
According to analysts from Citi and SK Hynix, the memory shortage is expected to persist until at least the end of 2027.
Recently, Choi Tae-won, chairman of SK Group (SK Hynix’s parent company), stated at an industry event that they are overwhelmed with supply requests from various companies and are concerned about meeting all of them, as failure to do so could jeopardize these companies’ operations.
In October, OpenAI initiated partnerships with Samsung and SK Hynix for its Stargate project, which is anticipated to demand up to 900,000 wafers monthly up to 2029—nearly twice the current global output of HBM.
While Samsung has noted it monitors market conditions, the company refrains from commenting on prices or client relationships. SK Hynix has indicated that it is expanding production capacity to meet growing memory demands.
Microsoft has chosen not to comment, and inquiries to ByteDance were left unanswered. Similarly, requests for comments from Micron and Google went unacknowledged.
“I’m begging for supplies.”
The release of ChatGPT in November 2022 set off a surge in generative AI, igniting a rush to build AI data centers which has led memory manufacturers to prioritize HBM production for Nvidia’s high-performance AI chips.
Chinese competitors producing low-end DRAM, like Changshin Memory Technologies, have increased pressure on Samsung and SK Hynix to shift toward products with better profit margins.
Korean firms currently dominate two-thirds of the DRAM market.
Samsung had previously informed clients that it would stop producing a certain older DDR4 type chip for PCs and servers by the end of this year, though it has since opted to increase output in this area, as per insider reports.
Micron also announced plans in June to cease shipments of DDR4 and its smartphone counterpart LPDDR4 within six to nine months.
ChangXin has similarly ceased production of most DDR4 products, although they’ve refrained from providing comments on this shift.
This realignment coincided with replacement cycles for data centers and personal computers, as well as unexpectedly robust sales of traditional smartphones that depend on older chips.
Reflecting on it, Dan Hutchison, a senior researcher at TechInsights, remarked that “the industry seemed to be caught off guard.”
In a recent move, Samsung raised server memory chip prices by up to 60%, according to reports.
Nvidia’s CEO Jensen Huang, while in South Korea, acknowledged the steep price increase but noted that Nvidia has secured significant supplies.
High-profile companies like Google, Amazon, Microsoft, and Meta have reportedly told Micron they would place unlimited orders irrespective of price, as per sources familiar with the negotiating discussions.
Companies such as Alibaba, ByteDance, and Tencent from China are also depending heavily on suppliers. They’ve sent executives to Samsung and SK Hynix to advocate for supply quotas.
“Everyone is asking for supplies,” one contact mentioned.
The Chinese companies have not provided responses to inquiries regarding the chip shortage. Notably, Nvidia, Meta, Amazon, and OpenAI also did not reply to requests for comment.
As of October, SK Hynix reported that all its chips scheduled for 2026 were already sold, while Samsung confirmed it had secured customers for HBM production next year.
Although both companies are enhancing production capabilities to satisfy AI demand, factories dedicated to conventional chips won’t begin operations until 2027 or 2028.
Shares for Micron, Samsung, and SK Hynix have climbed this year due to chip demand.
Micron recently projected that its first-quarter sales would outperform market expectations, while Samsung indicated it achieved its highest quarterly profit in over three years.
Counterpoint Research suggests that memory prices, both advanced and backdated, could rise by 30% by the fourth quarter and an additional 20% by early 2026.
Smartphone Price Shock
Chinese smartphone vendors such as Xiaomi and Realme are cautioning about potential price hikes.
Frances Wong, head of marketing for Realme in India, mentioned that the unprecedented rise in memory prices could force the company to raise product prices by 20-30% by June.
“Some manufacturers might lower costs on cameras, processors, or batteries,” he noted, “but the cost of storage isn’t something that can be shifted; it’s a burden all manufacturers have to absorb completely.”
Xiaomi stated that it expected to counteract memory cost increases by raising prices and promoting more premium devices, asserting that other divisions could help mitigate the impact.
ASUS, a Taiwanese notebook manufacturer, revealed in November that it had roughly four months’ worth of parts inventory, including memory components, and it would adjust pricing as needed.
Winbond, a Taiwanese chipmaker with a mere 1% share of the DRAM market, was one of the first to announce capacity expansions to meet demand. In October, its board approved a significant capital spending increase of up to $1.1 billion.
“Many customers have come to us saying, ‘We really need help,’ with some even expressing an eagerness for six-year contracts,” said Winbond’s president, Chen Peiming.
Traders in a Frenzy
In Akihabara, known as Tokyo’s electronics hub, stores have restricted the number of memory products customers can buy to prevent panic purchasing. A notice outside PC Shop Ark states that customers could only buy a maximum of eight items, including hard drives and solid-state drives, starting November 1.
Clerks at five stores mentioned that prices have escalated dramatically in recent weeks due to shortages, and in some cases, a third of the inventory was out of stock.
For instance, 32GB DDR5 memory, popular among gamers, now fetches over 47,000 yen, compared to around 17,000 yen just mid-October.
The premium for the top 128GB kits has skyrocketed, exceeding 180,000 yen.
Such price hikes are driving consumers toward the second-hand market, benefiting businesses like Akihabara’s iCON. Its owner, Roman Yamashi, noted a surge in demand for used PC components.
Eva Wu, a sales manager at a trading firm in Shenzhen, relayed that memory prices are experiencing rapid fluctuations, necessitating quotes that expire daily or even hourly, a stark contrast to previous monthly practices before the market downturn.
A DDR4 vendor in Beijing mentioned stocking up on 20,000 units in anticipation of even higher prices.
All the way across the Pacific in California, Paul Coronado shared that his company, Caramon, which sells recycled low-end memory from retired data center servers, has seen a boom in monthly sales since September. He revealed that almost all his sales now go to intermediaries in Hong Kong for resale to Chinese clients.
“Before, my monthly revenue was roughly $500,000,” he remarked. “Now it’s jumped to around $800,000 to $900,000.”
