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Dec 3 (Reuters) – A severe global shortage of memory chips is forcing artificial intelligence and consumer electronics companies to scramble for dwindling supplies of these components as prices soar.
Japanese electronics stores have started limiting the number of hard drives customers can buy, while Chinese smartphone makers are warning of price increases.
Tech giants such as Microsoft, Google and ByteDance are scrambling to secure supplies from memory chip makers from companies including Micron, Samsung Electronics and SK Hynix, according to three people familiar with the discussions.
Price pressure affects almost all types of memory, from flash chips used in flash drives and smartphones to advanced high-bandwidth memory (HBM) that powers AI chips in data centers. Prices in some segments have more than doubled since February, according to market research firm TrendForce, attracting investors betting that the rally still has momentum.
The consequences could go beyond the technology sector. Many economists and executives warn that prolonged shortages could slow AI-driven productivity gains and delay investments worth hundreds of billions of dollars in digital infrastructure. It could also increase inflationary pressure just when many economies are trying to contain rising prices and deal with US tariffs.
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“Memory shortages have gone from being a component-level concern to a macroeconomic risk,” said Sanchit Vir Gogia, chief executive of Greyhound Research, a technology consultancy. The expansion of AI “is colliding with a supply chain that cannot meet its physical needs.”
This Reuters analysis of the growing supply crisis is based on interviews with nearly 40 people, including 17 executives at chip manufacturers and distributors. It shows that the industry’s efforts to meet voracious demand for advanced chips has created a double dilemma: Chipmakers still can’t produce enough cutting-edge semiconductors for the AI race, but their shift in focus away from traditional memory products is constraining supply for smartphones, PCs and consumer electronics. Some companies are now rushing to correct course.
According to TrendForce, average inventory levels at vendors of dynamic random access memory (DRAM) — the main type used in computers and phones — fell to two to four weeks in October, down from three to eight weeks in July and 13 to 17 weeks by the end of 2024.
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The crisis is unfolding as investors question whether the billions of dollars invested in AI infrastructure have generated a bubble. Some analysts predict natural selection, with only the biggest and most solid companies able to withstand price increases.
An executive at a memory chip company told Reuters the shortage would delay future data center projects. Building new facilities takes at least two years, but memory chipmakers are wary of oversizing capacity, fearing it will be idled if increased demand slows, the source said.
Samsung and SK Hynix announced investments in new production capacity, but did not detail the division of production between HBM memory and conventional memory.
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SK Hynix told analysts that memory shortages would persist until the end of 2027, Citi said in November.
“We are currently receiving memory supply requests from so many companies that we are concerned about our ability to serve everyone. If we are unable to do so, these companies may be unable to operate,” said Chey Tae-won, chairman of SK Group, parent company of SK Hynix, at an industry forum held in Seoul last month.
In October, OpenAI signed initial agreements with Samsung and SK Hynix to supply chips for its Stargate project, which will require up to 900,000 wafers per month by 2029. This represents approximately double HBM’s current global monthly production, Chey said. Wafers are the sheets of silicon on which chips are manufactured.
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Samsung told Reuters it was monitoring the market, but did not comment on pricing or customer relationships. SK Hynix said it is increasing its production capacity to meet the growing demand for memory.
Microsoft declined to comment and ByteDance did not respond to questions about the chip variant. Micron and Google did not respond to requests for comment.
“BEGGING FOR SUPPLIES”
Following the launch of ChatGPT in November 2022, which fueled the generative AI boom, a global rush to build artificial intelligence data centers has led memory manufacturers to allocate more production to HBM, used in Nvidia’s powerful processors.
Competition from Chinese rivals that make low-cost DRAM, such as ChangXin Memory Technologies, has also led Samsung and SK Hynix to accelerate their transition to higher-margin products. South Korean companies hold two-thirds of the DRAM market.
In May 2024, Samsung told customers it planned to end production of a type of DDR4 chip — an older variety used in PCs and servers — later that year, according to a letter seen by Reuters. The company has since changed its mind and will extend production, two sources said.
In June, Micron said it informed customers that it would stop shipping DDR4 memory and its LPDDR4 counterpart — a type used in smartphones — within six to nine months.
According to one source, ChangXin followed suit and ended most DDR4 production. The company declined to comment.
This shift, however, coincided with a cycle of replacement of traditional data centers and PCs, as well as stronger-than-expected smartphone sales, as these devices rely on conventional chips.
In retrospect, “you could say the industry was caught by surprise,” said Dan Hutcheson, senior researcher at TechInsights.
Samsung raised prices for server memory chips by up to 60% last month, according to a Reuters report. Nvidia Chief Executive Jensen Huang acknowledged the significant price increase but said Nvidia has secured substantial supply.
In October, Google, Amazon, Microsoft and Meta asked Micron for unlimited orders, telling the company they would accept whatever quantity it could deliver, regardless of price, according to two people familiar with the negotiations.
Alibaba, ByteDance and Tencent are also putting pressure on suppliers, sending executives to visit Samsung and SK Hynix, sources told Reuters.
“Everyone is begging for supplies,” said one.
Chinese companies did not respond to questions about the chip crisis. Nvidia, Meta, Amazon and OpenAI did not respond to requests for comment.
(Reporting by Hyunjoo Jin in Seoul, Fanny Potkin in Singapore, Wen-Yee Lee in Taipei, Anton Bridge in Tokyo and Max A. Cherney in San Francisco. Additional reporting by Eduardo Baptista, Che Pan, Liam Mo, David Kirton, Heekyong Yang, Stephen Nellis, Jun Yuan Yong and Rachel More. Writing by Brenda Goh)
