Why a memory chip shortage is wreaking havoc on the consumer electronics industry
CBC
The boom of investment in artificial intelligence has led to a shortage of the world's memory chip supply, a predicament that has been nothing short of a crisis for consumer electronics companies around the world.
A shortage of random access memory, or RAM — a critical component in most modern devices — could soon drive up prices and force shipping delays on everything from laptops to smartphones to gaming consoles and automobiles.
"We've seen this huge growth in investments in AI data centres, and that is kind of sucking all the oxygen out of the room, if you will," said Willy Shih, a professor of management practice at Harvard Business School.
Just three companies are responsible for manufacturing the world's supply of RAM: South Korea's Samsung and SK Hynix, and their U.S. peer Micron Technology.
The latter two are completely sold out of high bandwidth memory chips through the rest of the year.
Where these firms used to manufacture traditional DRAM (dynamic random access memory) and flash memory for consumer electronics, "they've reallocated a lot of their capacity to the newer and more profitable high-bandwidth memory segment," which is used for AI, said Shih.
"I think what most people have been surprised at is how this AI spending has really soaked up all the demand and created shortages," said Shih, noting that companies are trying to build more capacity and plants to accommodate that demand. "But that takes some time to correct."
Some of the world's biggest manufacturers of consumer electronics have hinted they have little breathing room once their current stockpile of memory chips runs out. Others have said the shortage is weighing on their outlooks for the coming year.
Cristiano Amon, CEO of U.S. chip and software maker Qualcomm, blamed his company's weak second-quarter forecast on the memory shortage. Intel CEO Lip-Bu Tan warned there may not be any relief from the shortage for at least the next two years. HP confirmed it has started raising prices on its PCs, and Dell is reportedly doing the same for its corporate clients.
Meanwhile, Apple CEO Tim Cook said during the company's recent first-quarter earnings call that the tech giant foresees market pricing for memory "increasing significantly" in the near future.
"As always, we’ll look at a range of options to deal with that," Cook told investors.
Interpretations were mixed. While some analysts wrote that Apple has a track record of keeping retail prices in check during volatile periods, others wrote that the company would be facing up to $2 or $3 billion US in extra costs per quarter as a result of the shortage — and that it might raise the price of some products to offset that.
As the shortage wreaks havoc on bottom lines, one mid-sized consumer electronics company says it will eat the higher prices.
"Being able to source memory from suppliers has obviously become both much more challenging and much more expensive," said Nirav Patel, the founder of Framework, a U.S.-based repairable computer manufacturer that positions itself as an alternative to companies like Apple.
