Comment by Aurornis
5 days ago
> Hopefully the shortage leads large purchasers to engage in long-term contracts with the memory manufacturers which give them the confidence to invest in new fabs and increased capacity.
Most DRAM is already purchased through contracts with manufacturers.
Manufacturers don't actually want too many extremely long term contracts because it would limit their ability to respond to market price changes.
Like most commodities, the price you see on places like Newegg follows the "spot price", meaning the price to purchase DRAM for shipment immediately. The big players don't buy their RAM through these channels, they arrange contracts with manufacturers.
The contracts with manufacturers will see higher prices in the future, but they're playing the long game and will try to delay or smooth out purchasing to minimize exposure to this spike.
> Additionally, we're likely to see Chinese fab'd DRAM now, which they've been attempting since the '70s but never been competitive at.
Companies like Samsung and SK Hynix have DRAM fabs in China already. This has been true for decades. You may have Chinese fab'd DRAM in the computer you're using right now.
Are you referring to complete home-grown DRAM designs? That, too, was already in the works.
I don't agree with this sentence. Why would not the same apply advice to oil and gas contracts? If you look at the size and duration of oil and gas contracts for major energy importers, they often run 10 years or more. Some of the contracts in Japan and Korea are so large, that a heavy industrial / chemical customers will take an equity stake in the extraction site.
Except silicon, power, and water (and a tiny amount of plastic/paper for packaging), what else does a fab need that only produces DRAM? If true, then power is far and away the most variable input cost.
> Why would not the same apply advice to oil and gas contracts?
Because oil & gas suppliers only ever sell one product, and memory fabs can dynamically switch product mix in response to supply & demand to optimize profits. The same sand, power and water can make DDR4, HBM or DDR5
Oil and gas suppliers have several products: gas, diesel, jet a, propane, naptha, asphalt etc.
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Are you seriously trying to compare raw commodity inputs traded on the futures market to finished semiconductor products that are expected to become deprecated, uncompetitive and/or EOL'd in a few years?
Yes it looks like he does. And I don't see why not. The fact that their products become deprecated, gives even more incentive to manufacturers to want long term contracts.
Now do a comparison to hog or corn futures
Same does apply to gas contracts. So many a time LNG companies break contracts and pay hefty penalties if the spot rate is high enough.
>So many a time LNG companies break contracts and pay hefty penalties if the spot rate is high enough.
What do you mean "Break contracts"? I thought the conversation was about Futures contracts, you don't break them. You sell your contract or you take/give delivery (or cash settle).
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> Except silicon, power, and water
Various chemicals too, https://haz-map.com/Processes/97
Great point. You are the only one who mentioned this! Example: photoresist film.
> Except silicon, power, and water (and a tiny amount of plastic/paper for packaging), what else does a fab need that only produces DRAM? If true, then power is far and away the most variable input cost.
Borrowing costs can be wildly variable and are the main cost of making silicon. All the "inputs" over the lifecycle of a fab are so completely dwarfed by the initial capital costs that you can pretty much ignore them in any economic analysis. The cost of making chips is the cost of borrowing money to pay for capital costs, and the depreciation of the value of that capital.
This theory sounds nice, but do you have any sources to share? For example, I assume a fab runs for about 20-30 years. The labor inputs must be very high over this period. Basically, there are no poorly paid people inside a fab. And wouldn't "wildly variable borrowing costs" also affect oil and gas who need to finance the research phase and construction of the plant?
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> Are you referring to complete home-grown DRAM designs? That, too, was already in the works.
Yes, via cxmt as discussed by Asianometry here: https://www.youtube.com/watch?v=mt-eDtFqKvk
As I mentioned, various groups within China have been working on China-native DRAM since the '70s. What's new are the margins and market demand to allow them to be profitable with DRAM which is still several years behind the competition.
Lots of low end android boxes use cxmt ddr4.