Comment by LeifCarrotson
19 hours ago
What was most surprising about all this to me was this line:
> So modern DRAM manufacturing is an extraordinarily complex and expensive process. Building a single state-of-the-art DRAM fabrication facility, a “fab,” will cost you about $15 to $20 billion; acquiring all the necessary equipment, like lithography tools and etching machines, will cost you another few billion; and then it’ll take you a few years of producing substandard and defective memory chips before your yields start to look competitive.
Extraordinarily complex and expensive! And yet I look at all the money being shuffled around between Nvidia and Google and Microsoft and Amazon and Apple and can't help but think that this is a tiny amount in comparison to what they're moving around on the stock market buying shares in each other.
Apple in particular has $20B in its couch cushions and is very vertically integrated and hardware-focused. Apple silicon is currently made by TSMC, but it seems they'd be a prime candidate to spin up their own memory fab.
I suppose the biggest problem to current executives at each company is the "few years" until that investment yields results, in the short term it's better to pay through the nose and buy GPUs with HBM at any price.
> it seems they'd be a prime candidate to spin up their own memory fab.
While Apple et al certainly have the money to tilt up their own fab, they're savvy enough to understand the memory market's long history of constant boom/bust cycles. I still remember the huge DRAM shortage in late 80s forcing my startup at the time to delay launching our new product for a year.
People assume Apple cares about vertically integrating cost but they're actually focused on integrating margin. Apple has billions in cash on hand and when they think about what to do with it, a key metric is Return on Capital, especially the margin that capital will generate. Since a core metric public companies are judged on is blended margin, they are looking for ways their bags o' cash can be put to work generating revenue at margins that will pull their current average margin up vs down.
Averaged over time, mainstream memory devices are historically one of the worst margin areas of the semi market. It's super expensive to tilt up a fab on a new node but once you do, turning the crank faster to make a lot more chips isn't too hard because mainstream DRAM tends to be quite uniform. So when a fab on a new node and/or RAM generation first opens, the margins tend to be pretty great. But as the node matures and/or the RAM generation goes from 'new' to 'commodity', competition heats up as everyone gets better at making more faster. Then they're tempted to maximize revenue by cutting prices until their mature fab is at 101% utilization. And that eventually drives margins down until someone's selling near cost to sustain their low-price-enabling volume - with occasional dips below cost when they get stuck holding excess inventory. That's why cash-rich companies with high margins like Apple are delighted to buy DRAM built with Other People's Money. As long as the DRAM market is under competitive pressure, Apple gets to shop their huge orders around to get the absolute lowest price on RAM that was built with other investor's low margin dollars.
> I still remember the huge DRAM shortage in late 80s forcing my startup at the time to delay launching our new product for a year.
That one was caused by manipulation by politicians, not market forces. Micron started a price war with Japanese memory manufacturers, the Japanese cut prices to compete, Micron sued them for "dumping". The saga ended with the 1986 U.S.–Japan Semiconductor Agreement, which, among other things, created production controls that limited the total dram supply. The level was set based on then current demand, and due to the rapid growth of demand at the time it almost instantly caused a massive global supply deficit.
The agreement also caused the rise of the South Korean memory industry, because the Japanese companies offloaded their now surplus equipment for cheap.
> That one was caused by manipulation by politicians, not market forces.
Funny how you then go on to explain it was market _actors_ that drove the politicians to act, but that this is nevertheless totally not an example of market _forces_.
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This has become like opec's best years. Only there's no cartel at least not openly.
But there's another key bottleneck. Even with all the money in the world, getting those machines that etch the RAM could be a multi year ration shop queue. And they're not making those companies every day!
> This has become like opec's best years
Yes, except no DRAM maker is taking this as a signal to go deep into debt to double or triple capacity. It takes a minimum of 3+ years to dramatically increase capacity and no one expects this inflated demand bubble to last that long. Because they've seen this cycle before, they'll bump next gen capacity up a bit more than planned, maybe 15-25% because the current windfall profits are enough to build a buffer to absorb the hit if that excess capacity comes online in the next DRAM demand crash.
In the meantime, they'll just apologize to everyone for the "market conditions beyond our control" while banking as much of these crazy profits as they possibly can while it lasts. But deep down they remember they were starving just yesterday and know they'll be starving again tomorrow.
I understand why everyone's pissed at the "evil DRAM makers" but I also remember boasting about how I scored some crazy cheap RAM sticks not so long ago. None of us were shedding tears when they were selling at a loss just to survive.
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To reframe your great comment:
Is it fair to conclude that DRAM is basically a commodity that can be specified well enough by a set of parameters?
If so it won’t allow you to get any competitive advantage in your products and thus wouldn’t be a business you want to be in as Apple.
Yes, that's what I meant by "Mainstream DRAM". The basic parameters are specified by standards like JEDEC, so the most common types can be used in many systems thus reach high volumes. This can be less true for specialized RAM like HBM or the highest performance grades.
The competitive advantage is having access to it.
The only reason I can see Apple do this is if it enables them to sell entry level devices with vastly more ram than the competition can afford. Say entry level MacBook Pro with 256GiB ram to facilitate running frontier level local models. If that is an edge they want to have.
In what world would 256GB of RAM be “entry level”?
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And yet, Apple had to drop base configs from their lineup. They weren't selling $599 Minis at cost. They could take someone over and inflict damage on competition.
And what happens if the market settles back down or the leading memory tech pivots away from what you invested all this capital and time chasing?
You'd need a very strong, very particular forecast to make such a costly bet. And conversely, it may say something about their internal forecasts that they're not making the bet.
> And conversely, it may say something about their internal forecasts that they're not making the bet.
Idk if you can read into it that way.
All these companies have cafeterias but you don't see them investing into farmland so they can get their bananas a few cents cheaper.
But also why bother spending 20B on a fab when you can invest 20B into TSMC and let them build the fab?
Probably for strategic reasons.
Mainland China is one concern.
Another is AI being the commodity compliment to semiconductors.
Because having every major company in America’s eggs in one basket is as insane as it gets, especially with China bearing down on Taiwan.
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> And conversely, it may say something about their internal forecasts that they're not making the bet.
It says they are no longer worried about being punished for monopolistic behavior and have bet a “ballroom donation” will exempt them from another round of punishment.
I feel like folks around here have already forgotten about the last time the memory suppliers quietly agreed to keep raising prices and stop competing with each other.
https://en.wikipedia.org/wiki/DRAM_price_fixing_scandal
Meta spent more on the Metaverse, it’s all the most certainly something they can afford to take a hit on and they won’t because memory and CPU usage is only going to go up from this point on.
Why should society care about people making profits? Society would greatly benefit from cheap abundant ram than FAANG shares going up. I'm kinda sick about only caring that some billionaire makes more money and would rather you know... actually improve conditions to better society.
This is why China is eating the West. Quite easy to start an electronics company when you have such an abundance of suppliers, compare this to America where there is maybe one or two players in the entire nation.
Quite pathetic, but we live in a pathetic world so it tracks.
You think Chinese businesses aren’t in it for the profits?
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> This is why China is eating the West.
Nothing to do with cheap labour.
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I own FAANG stock because I own the S&P 500 in my retirement accounts, and so do managed pension funds. There's a lot more than billionaires who benefit from FAANG shares going up in value.
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Society should care about people making profits because otherwise those people do something else instead of providing goods and services. What happened in Communism is instructive on this point. Now if you want to argue that the pursuit of maximum profit as an end is a problem, there's a case to be made. The US had something like a marginal tax rate of 90% around the 1940s/1950s, if I recall correctly, and it obviously didn't hurt innovation, but people got paid in perks and corner offices and status instead of just money.
I think people are misled by Marx and derivatives, and misdiagnose the problem. I don't think people are upset by the CEO making lots of money as much as they are by the HBS management style of using people as a tool, or even as interchangeable "resources". However, the philosophical materialism of Marx & Co. pretty much makes this inevitable. (The secular view is also materialism, so you get it on both sides.)
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Society shouldn't. But it's not society making that decision, it's the corporations and people with lots of wealth that want to get even more wealth.
You don't understand the point of capitalism. It's not about making rich people richer. Capitalism is about producing stuff. To create a large variety of (useful) products for society.
You need capital to make pretty much anything. Somebody has to come up with a large amount of resources (money) put upfront into the venture. Capitalism creates the incentive for that - if the gamble pays off, then the investors get more value back. If it doesn't work out, then investors lose money. Most businesses fail early and do not provide a return for the investment.
The point of capitalism is to keep this system running. As a result of it we have made an ungodly amount of technological and quality of life improvements. Some people have become filthy rich from this, but typically they also provided the world with goods or services that people like and use. Tesla made Elon filthy rich, but it also made electric vehicles popular.
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It's a cycle. The zeitgeist moves from communism to capitalism and vice-versa every 30 years or so.
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> Why should society care about people making profits?
The people making profits are the ones providing food, shelter, and phones to you.
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For a commodity part, Apple has a history of buying a manufacturing partner a dedicated manufacturing line in exchange for locking down a guaranteed supply at a lower overall price.
It's one of the early moves Tim Cook made after joining Apple to lock down enough flash memory supply to move iPods from hard drives to flash.
Part of this is a lie high prices for equipment has a lot to do with monopolies in the whole supply chain and one of the major reason I am rooting for China to get parity on node as that would mean it would have been able to break all the monopolies and we get competition on the whole production from uv machines, wafer, on equipment for storing etc. Renewables are rapidly taking the world to very cheap or free energy but it would be bad if the way to best use the energy for production is controlled by a few corporations
China becoming self sufficient in chip fab could be the trigger point for WW3 so lets not root too hard
no we already are going to a world war with the pedophile president and parliament (for some reason people like to pretend he is the only one in the epstein files) being controlled by a mass child murdering prime minister of a racist apartheid country they will attack Iran again and start the world war.
While I think Apple is a prime candidate to do something like this financially, I’ve never had the impression that they ever want to get involved in something “just” for vertical efficiency. There’s always a long-term vision where they can leverage it to gain a competitive edge that their competitors can’t match (the PA Semi acquisition being a perfect example of this).
RAM doesn’t seem like something where simply owning the manufacturing could lead to a disproportionate competitive edge. It would just be a vertical efficiency gamble that may or may not pay off. Of course that could simply be a failure of my imagination.
Tesla is building their own fab
Huge gamble - If they pull it off I wouldn't be surprised if other companies follow
And then everyone will scream unfair when the Chinese roll up the market from the bottom.
$20B a single Fab. And you don't just have one Fab. You need multiple. And again I have to state this every time, the most expensive Fab is empty Fab. You need to fill it, and you need to fill constant and consistently for years.
>but it seems they'd be a prime candidate to spin up their own memory fab.
They will be the prime candidate to work with memory makers for additional capacity. Not to start their own one. Here is a $20B cheque and 5 years guarantee of orders. Go and make me some memory for his price.
I mean this is the same story for iPod and NAND. It seems we are repeating what we should have learned.
You needed to fill it constantly in the “old times” when memory was ubiquitous and cheap to justify the finance payments on the debt you incurred to build it.
When you’re Apple and can build it with cash, and ram is currently so insane it saves you a decade of memory price gouging in a single year, the math changes quickly.
> Apple in particular has $20B in its couch cushions
I wonder how long it REALLY took them to move from intel to apple silicon, which they don't even make.
It might be easy, like a consumer deciding to generate their own electricity (pv on the roof)
or it might be slightly harder, like a consumer deciding to generate their own electricity by drilling for oil, refining it, etc...
Well, they acquired PA Semi in 2008, they used their first chip (the A4) in the iPad in 2010, and they progressively iterated using the chip in phones until they announced the switch from Intel in 2020 (concurrently, more or less, with the A14). So it took them 12 years and 10 different chips.
> I wonder how long it REALLY took them to move from intel to apple silicon, which they don't even make.
Apple has much, much more control over their silicon than they ever had with Intel.
With Intel, they were stuck with whatever Intel could supply - and that, particularly regarding power management, wasn't much.
In contrast, for ARM, Apple has been one of their longest-ever partners [1], with Apple holding one of the very rare and probably very expensive "Architecture Licenses" that allow Apple to not just build CPUs out of pre-made IP blocks, but also design their own cores and, and that is the crucial thing, extend the ARM instruction set on their CPUs.
The latter is what made the ARM move feasible, there would have been no way of getting high-performance emulation of x86 without a few specific extensions.
[1] https://www.macrumors.com/2023/09/06/apple-inks-new-deal-arm...
They are not just shuffling money around though.
Nvidia sells all the stock, prices for GPUs moved up not down.
Companies like Apple don't want to be in every industry. Its risk, its cost, its expertise you need.
And sure you can throw money at it but you need people. Alone hiring all the experts is probalby not that easy. Who knows how to setup a DRam Factory?
It takes years to build this up
Literally the most overwhelming thought, reading this, is "man, capitalism is a mistake"
The amounts of money circulating whilst some of us struggle to make rent ...
Nothing fair, or just, about this world we live in
> The amounts of money circulating whilst some of us struggle to make rent ...
It may be expressed in terms of money, but these are assets and capital. You wouldn't find a fab a very comfortable or satisfying place to live.
The reason the numbers get so big is the gargantuan accumulated savings that are prepared to fund the similarly gargantuan ventures. The large numbers are supported by maintaining and sustaining the capitalized value by profitable investment and depreciation.
When you talk about rent, while it may be expressed in the same unit (money), the economic function played is very different. Here, it is consumption rather than saving/investment. If the dollar equivalent of all those assets went towards paying rent, while it would secure housing for some time, it would eventually become completely exhausted, and so too would housing security. Large pools of assets are simply not a way to get stable housing, it would only consume the large savings society has accumulated to be able to undergo those big ventures. It would be short-sighted and harm us in the future.
The cause and solution to rental instability is to be found in housing, building, and land policy that restricts the production of housing.
That's right. Housing is not an asset to society or the economy, it's a drain that wastes money on preserving human life. Unlike valuable uses of capital like options trading and cryptocurrency.
No, capitalism isn't a mistake, unregulated capitalism is a mistake. The solution is simple, don't let companies merge/acquire after a certain size. Capitalism works when there is a healthy competitive market. It doesn't work when there are 1-3 big companies all fixing prices.
> , is "man, capitalism is a mistake"
Man, we need a better term for this criticism.
The US right now is more harsh to live in than the US pre-Reagan, which was more harsh than many countries with a strong welfare state, but all of them are capitalistic.
Perhaps the term you are looking for is corporate feudalism.
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“Late-stage capitalism” is the normal term for expressing a belief that capitalism tends to eat itself over a long enough time horizon.
China going capitalist ( while remaining authoritarian ) has helped lift 800 million out of desperate poverty.
I hope that India too can emulate this in my lifetime. I was born in Kerala and would love to see Indians live in a country that is as wealthy per capita ( PPP adjusted ) as Singapore or failing that even as wealthy as the USA.
Capitalism has it's problems. But you struggling with rent is entirely your self-inflicted problem...
> But you struggling with rent is entirely your self-inflicted problem...
Yeah, that one guy and 70% of the country https://www.yahoo.com/news/videos/70-americans-struggle-pay-...
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> But you struggling with rent is entirely your problem...
Who said anything about struggling with rent? Sounds like you a grasping for a straw man.
> I hope that India too can emulate this in my lifetime
I, too, hope the best things for the people of China and of India. But India, by any metric, is already a capitalist economy, where its wealth is concentrated in the hands of a very few.
To the extent that China has been successful is distributing its wealth among many people, I'd say it's the authoritarianism, rather than the capitalism, that has been instrumental. The state sets agendas, quotas, and salaries specifically to produce that outcome. Top-down government control is not a feature of unbridled capitalism.
So we have two large industrializing economies, both capitalist. One (the authoritarian one) has succeeded in drastically reducing poverty; the other has not. And yet you think that capitalism is the driver of equality?
Capitalism produces wealth. You need some other system to distribute that wealth fairly.
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> But you struggling with rent is entirely your self-inflicted problem...
The funny thing about this is that practically every single person in the US between the ages of 25-45 was an early adopter and a big fan for some (or all) of FAANG in the early days, and clearly saw the importance. The fact that they aren't filthy rich and far wealthier than older people tells a story. Not a story of lattes and avocados, but a story where housing and education costs guaranteed that as a group they couldn't save, never had a chance to invest, still can't invest. With certain adjustments the story isn't so different for much of the western world.. maybe education was cheap/free but their domestic labor market was weaker, whatever. They were and are still pretty much guaranteed to be on the outside. Luck, timing, and good connections are nice at any time, but the last few decades it's everything. In another timeline maybe wealthy youth is landlording it over the impoverished oldies, but in the best timeline we'd split the difference.
Even worse, it's a uniquely bad time to be smart and hardworking, because that's the type of attitude that could stick you with a lack of resilience at just the wrong time. People who've coasted may do much better than ones who are striving. Would you rather be a university grad with new debt right now, or be a certified HVAC tech for the last 5 years? If you were a mechanic, would you want to own the shop with loans to pay off in this economy and tariffs to deal with, or would you prefer to be a simple employee that can just bounce once the company goes under? I've met phd's who are delivering pizzas to make ends meet. Blue collar folks not only have better job security at the moment, but going back some years, if they got a mortgage at the right time and place with that stable job maybe they could do normal life stuff like kids, retirement one day.
What lessons do we think young people will take from all this? Nothing against anyone who is lucky, but a stubborn belief in mythical meritocracy or the legendary American dream is absolutely stone-cold crazy these days. There's just the insiders and the outsiders and there's not much rhyme or reason to any of it.
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I would be curious to see those stats that show they are no longer in poverty, as poverty is relative, aka when rent goes up many still can't afford it. Just because they have more money coming in, it doesn't mean they aren't poor. Wealth per capita in the UK, US, Germany, and so on is good but there is still rampant poverty in each where people struggle to afford food, housing, and utilities. The wages don't match the outgoings.
"while remaining authoritarian" implies that Authoritarianism is an exclusive trait of Communism, which is the most absurd thing I've ever heard. Use any Capitalist country with an Authoritarian leader as an example.
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Courtesy of TFA and capitalism:
"In 1985, if you were a reasonably affluent American, the best computer that you could afford was the IBM PC AT. The PC AT would cost you about $6,000—$19,400 in 2026 dollars—and thus represented about a quarter of the median American’s annual income; and it ran on an Intel 80286 processor, capable of something like 900,000 instructions per second. Today, if you find yourself in a market stall in Nairobi or Lagos, you’ll be able to find a cheap smartphone—like the Tecno Spark Go, manufactured by China’s Transsion—for somewhere between $30 and $120. That phone will run on a processor capable of billions of calculations per second."
This quote has nothing to do with capitalism.
Please note that "commerce" and "capitalism" are not synonymous, and that the former does not imply the latter. Capitalism is in no way a prerequisite for technological development.
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That has little to do with what I said.
A third of the world lives in poverty. That's the fault of capitalism.
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> Nothing fair, or just, about this world we live in
We all make different choices, and so have different consequences.
For example, I squandered the proceeds of a business deal on a new car. If I'd bought MSFT instead, I could have bought 100 new cars.
So what you're saying is that we all just need to become better gamblers? That doesn't exactly scream functional society to me.
Besides, this can't work for everyone - if you get 100 cars without an equivalent amount of more work put in then someone else has to do that work without being properly compensated for it.
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If I'd simply written the correct numbers on last week's lottery ticket, I could do that.
(hindsight stock picking is terrible!)
> And yet I look at all the money being shuffled around between Nvidia and Google and Microsoft and Amazon and Apple
A lot of that is “weird money” created by the act of passing it around between the entities or “Holywood accounting” style money that exists when convenient and will vanish the instant it might be taxed or need to be extracted from the cycle to pay for something tangible. Trying to use a large amount of that money for tangible long-term building projects risks piercing the vail.
It’s hilarious that they’ll spend a trillion renting GPUs instead of just making their own.
Even if you were nowhere near state of the art, being able to produce millions of your own cards every year at cost would save you a lot of money.
Apple, Google Microsoft Amazon should all set up memory and CPU fabs. I don’t understand why they don’t do it. $400 million ASML machine is chump change and you can almost certainly find/train locals or provide incentives to immigrants to come here as workers to fill the roles there.
fabs probably was low margin business compared to selling Ads before current AI boom.
30 years ago that's how the industry was structured. IBM was the largest memory manufacturer. MBAs spent decades undoing the arrangement you're now suggesting.
Well, isn’t Musk doing something similar with his new solar panels fab?
Frankly it’s ridiculous how we (the West) dropped renewables like a hot potato because it became synonymous with subsidizing China’s dominance in the field.
Now that I look into it, it looks like he is, which is a good thing. For some reason I thought Terafab was like a pie-in-the-sky idea where he was going to do compute in space on satellites or something, but it isn’t that. It’s actually a real fab in the United States and I fully support that even if Elon is a piece of shit.