“RAMageddon” and “RAMpocalypse”: DRAM Shortage to Make All Electronics More Expensive

[Financial News]  

The Armageddon caused by the DRAM shortage—dubbed “RAMageddon”—is hitting the consumer electronics market. As AI consumes DRAM chips, concerns are growing that memory shortages will drive up prices for nearly all electronic products. The consumer electronics market’s long-standing trend of falling prices and improving performance over time is being reversed.

The FT reported on the 5th (local time) that consumers who had enjoyed increasingly advanced, high-performance appliances at lower prices for decades are now facing a strong backlash in the AI era.
Javier Dillon, chief economist at the British Retail Consortium (BRC), said the AI investment boom was driving up memory and other component prices, adding that “the trend has reversed.” Major manufacturers, including Apple, have already raised prices despite concerns about slowing sales.
Minseong Hwang, head of the research center at Counterpoint Research, noted that in the consumer electronics sector, “literally everything” is being affected by the memory shortage.
DRAM, which is essential for smartphones, PCs, and video game consoles, is facing a severe supply shortage as demand from hyperscalers surges. This is putting pressure on appliance manufacturers and retailers as their costs rise. Hyperscalers are companies such as Amazon, Microsoft (MS), and Google that build large-scale data centers to provide cloud services.
Amid the severe memory shortage, investors are buying large amounts of shares in memory designers and manufacturers such as SanDisk and SK hynix. Their stock prices have each soared by more than 1,000% this year. Recently, however, they have also faced heavy selling pressure amid concerns that the boom may not last.

Regardless of the pessimistic outlook among stock-market investors, consumers are facing higher prices for everyday appliances. According to International Data Corporation (IDC), manufacturers and retailers have already raised prices by as much as 20%.
On Reddit’s PC and gaming forums, users are calling the memory shortage “RAMageddon” and “RAMpocalypse,” saying prices are rising too steeply. The terms are twists on Armageddon, the final battle of humanity described in the Bible, and the Apocalypse, which refers to events foretold at the end of the world.
According to Counterpoint Research, DRAM prices have risen fivefold over the past year. Contract prices are increasing by 10% to 20% each quarter.
Semiconductor companies have halted or reduced production of lower-spec chips used in consumer electronics. They are doing so to focus on producing HBM (high-bandwidth memory) for AI, which offers much higher margins.
Although DRAM is experiencing the most severe supply shortage, other semiconductor segments, including GPUs (graphics processing units) and CPUs (central processing units), are also facing tight supplies.

Since the 1970s, consumers have used increasingly better electronic products at lower prices year after year. Advances in semiconductor technology made this possible.
The foundation was what is known as Moore’s law: the number of transistors on a microchip doubles every two years. This meant consumers could use more powerful computers at lower prices.
That trend, however, is now being reversed.
Apple raised prices for some laptop computers and tablet PCs in June. Prices for the highest-specification models increased by as much as $300, or approximately 400,000 won. The outlook is also bleak. The company expects sales growth to slow because of shortages of components, including memory.

The gaming market is taking the biggest hit.
Console makers such as Microsoft, Sony, and Nintendo are finding it even more difficult to absorb higher costs because they were already selling hardware at a loss. The market’s business model is to offer consoles cheaply and make money from gaming software and subscriptions.
Even under this business model, they have been forced to raise console prices. Prices have increased by as much as $150 in recent months.
Nintendo reported an unexpected cost of ¥100 billion, equivalent to about 30% of its annual operating profit, in May. It attributed the expense to “soaring component costs, particularly memory.” Nintendo’s share price has plunged by about 25% this year.
Mobile phone prices are also rising.
Minseong Hwang of Counterpoint Research forecast that DRAM prices for smartphones had risen by $250 over the past year and that the cost would be passed on to new phones released this fall.

Price increases are expected to hurt sales.
According to an analysis by Ampere Analysis, if Sony or Microsoft prices consoles currently costing around $700 at more than $1,000, sales could plunge by as much as 43% over the next five years. In other words, sales could be cut in half within five years.
Piers Harding-Rolls, head of games research at Ampere Analysis, forecast that console makers would be “forced to innovate” to supply products at lower prices. He added that discussions about in-game advertising would resume as companies seek to absorb costs, and that they would introduce new forms of bundled subscription products.

Analysts expect appliance makers to adopt a strategy of upgrading specifications to minimize the impact of unavoidable price increases. This would lead to a rise in premium appliances.
However, according to Minseong Hwang of Counterpoint Research, Chinese companies that sell value-for-money products, such as Xiaomi, Oppo, and Vivo, are likely to experience “real pain.” Their customers will find it difficult to absorb price increases easily.
Semiconductor companies have begun expanding their facilities in response to the supply shortage. However, completing and operating these facilities will take considerable time, making it difficult to avoid a prolonged surge in electronic product prices.
Hwang advised consumers who urgently need new appliances to buy them as soon as possible. Otherwise, he recommended waiting until manufacturers improve performance enough to justify the higher prices.
[email protected] Song Kyung-jae Reporter