A future museum worker shows a young boy a rare and precious artefact: a carefully displayed computer memory stick. The curator explains to the child that the item was from “circa 2023, before the AI wars drive prices beyond mortal reach”.
The meme, doing the rounds on social media last week, may provoke a hollow laugh among business leaders scrambling for a supply of memory components, or baulking at the prices for what they can find amid an acute shortage.
Consumers will soon be at the receiving end of the joke too, as they are asked to pay more for phones, computers and other electronics even when their specifications do not provide much of an upgrade on their current model.
The culprit is the frenetic race to build the infrastructure required to underpin the artificial intelligence boom. This has absorbed much of the world’s memory chip supply, impacting prices as manufacturers prioritise AI business, which is more profitable, over supplying makers of consumer electronic devices.
The chip designer Arm has said the industry faces a “severe” shortfall of supply
ARM HOLDINGS
Alphabet and Amazon alone have set out plans to spend as much as $185 billion and $200 billion, respectively, on AI this year — more money than any company in history has ploughed into capital expenditure in a single year. Much of the spending is going on data centres and associated components, including memory chips.
Claus Aasholm, an analyst who specialises in the semiconductor supply chain, says awareness of the issue is broad (“even my hairdresser understands there is a memory shortage”) but not everyone has yet woken up to the scale of the memory “famine”. He adds: “The problem is about to get a lot worse.”
The world’s three largest producers of chips, Samsung, SK Hynix and Micron, have all said that they are struggling to keep up with demand for memory and analysts expect the crisis to hit global demand for smartphones, personal computers and gaming consoles this year.
Last week Sony was reported to be considering pushing back the release of its next generation of PlayStation consoles to as late as 2029, while Nintendo was weighing up increasing the price of its Switch 2 console. Dell, Asus and Acer, the PC makers, are considering sourcing memory chips from Chinese chipmakers for the first time.
Apple’s Tim Cook, Tesla’s Elon Musk and Qualcomm, the chip and telecoms company, have all warned about the issue, which Cristiano Amon, the Qualcomm boss, has said is “likely to define the overall scale of the [mobile] handset industry” this year.
Cristiano Amon, chief executive of Qualcomm, based in San Diego
DAN TUFFS/ALAMY
Rene Haas, the chief executive of the chip designer Arm, said the shortage of memory chips was the most “severe I have seen in at least two decades”, while the Samsung executive TM Roh called the constraints “unprecedented”.
The dynamics are good news for the three chip giants that dominate supply. SK Hynix, based in South Korea, for example, has seen its share price rise by more than 300 per cent in the past year.
In short supply are so-called Dram, or dynamic random-access memory, and Nand flash memory. Both forms play a vital role in computing devices. There have been reports of a near quarter-on-quarter doubling in Dram prices in the first three months of this year.
While no one is immune from the problem, it is acute for smaller electronics companies and particularly those focused on entry-level products.
Aasholm, who writes the Semiconductor Business Intelligence blog on Substack, says that high-bandwidth memory (HBM), a variant of Dram that is favoured by the AI industry and in which SK Hynix specialises, has exacerbated the issue.
It requires more production capacity to make and is attractive to manufacturers because buyers are willing to buy on long-term contracts. Tech giants are asking suppliers to add other memory components to their HBM contract orders. That leaves other buyers who buy at market spot prices, such as consumer electronics, at risk of being frozen out.
Aasholm says: “They’ll have to fight it out at the market. We have this enormous pressure [on] the commodity areas like mobile phones, PCs and industrial memory and automotive. You have companies who can make a long-term commitment versus companies that can barely think a week ahead.”
As Fusion Worldwide, an electronic components distributor, has put it, if you are not a tech giant and trying to source memory now “you are competing against the most well-funded supply chain operation in semiconductor history — and losing”.
Aasholm says: “There’s panic buying, it’s like toilet paper during Covid. We are starting to have companies ship their equipment without memory, so the customer has to find it themselves.”
Last week the boss of Phison, a Taiwanese memory device maker, said that a number of consumer electronics companies could go bust by the end of the year because of the crisis.
Morningstar and JP Morgan have said the shortages will last well into 2027, while Counterpoint Research says global shipments of advanced smartphone chips are expected to decline 7 per cent this year, partially due to rising memory prices.
Analysts at UBS have forecast that the car industry could face a 120 per cent increase in costs for Dram chips and there could be a 5 per cent hit to earnings.
Carl Pei, founder and chief executive of Nothing, the London-based smartphone and gadget maker, has warned the “era of cheap silicon is over” because the problem breaks the long-term downward trend in electronic component costs, which has allowed for gradual specification improvements without significant price rises for decades.“This is a reversal of everything we’ve come to expect from this industry.”
Nothing was founded by Carl Pei in 2020 and is known for its series of transparent Android-based smartphones and accessories
JOSHUA BRATT FOR THE TIMES
He says the issue is going to “impact all consumer electronics” but particularly businesses selling entry-level products. He said Nothing had still been able to get the components it needed but that it had seen steep price rises. Memory components typically represent about 15 per cent of the cost of making a phone, Pei says, adding: “This year, it’s like 40 per cent. So that means you have to find some savings or raise the price.”
As Jacob Bourne, a technology analyst at the market research firm Emarketer, notes that this is coming “at a time when a lot of consumers are already stretched thin on their budgets due to inflation”.
Chip manufacturers have begun to invest in additional capacity but it is unlikely to come online until next year at the earliest. “We’re still far away from seeing meaningful increases to the overall capacity,” Aasholm warns.
Bourne said that even as capacity comes online, “there is no guarantee that will be allocated” to consumer electronics. “We have data centre construction projects that haven’t started yet, and more projects coming down the line that will increase demand for memory chips and other components. That’s a big concern … if the AI race continues to be the driver of demand, they will continue to allocate resources to that.”
While lower demand usually means falling prices, that dynamic is not yet present in any significant way in memory chips.
Aasholm says: “The problem is, this time there are two big buying groups and AI has a completely different pain level than the makers of PCs and mobile phones and industrial equipment.
“I can’t see the end right now. The AI companies have really not shown any weakness in their spending commitments. And that’s the only thing that can change this. It’s quite an unhealthy spiral at the moment, seen from the consumer perspective.”
So what should you do if you’re in the market for a new phone or PC? “The best thing I can say about that right now is you should have bought it yesterday,” Aasholm says.