Comment by deadbabe
2 hours ago
Here’s the thing, what if memory manufacturers take this opportunity to collude and basically never reduce the price of memory below the current levels since it’s too hard for a new competitor to just rise up and undercut them? Everything I hear about is how hard and risky it is to spin up a new fab.
And by doing this, they ensure local LLMs never become feasible for the vast majority of people and AI companies solidify subscriptions forever.
Keeping prices at this level is precisely how one or more competitor will rise up. Making memory isn’t super hard. That’s why it is a commodity. The problem with the memory market is that up and down cycles have bankrupted the vast majority of players in the past. Now we only have 3 players left except for a few smaller ones in China.
The reason memory prices can stay high for years in this mega cycle is because the 3 players will be very cautious on overbuilding. They’d rather under build, make great profit (not maximum) and reduce the risk of going bust if this suddenly ends.
Same for TSMC in chips.
Great opportunity for Chinese companies though. This shortage is exactly what Chinese companies need to scale.
> Making memory isn’t super hard.
Then why do only 3 companies make it?
Bankruptcy risks.
When Samsung had to sell memory at a loss after COVID, no one came to save them. They buffered their memory division using profits from their other businesses. That’s how Samsung survives memory downturns.
According to some stories, this is how Samsung convinced TSMC to not enter the memory business - that you need a nation or other lines of business to prevent bankruptcies.
The market has stabilized to 3 players.
3 replies →
Making the memory can be much easier than predicting future demand.
Placing the bet isn't as hard as making an accurate prediction.
> up and down cycles have bankrupted the vast majority of players in the past
Exactly, so what’s the incentive for anyone to sink half a billy into building out more capacity.
The existing players get to rest on their laurels and succeed whether or not the AI bubble busts.
The incentive is that your 2 competitors will build more than you and gain market share on you if you are too conservative.
Samsung, SK Hynix, and Micron all have to balance between capex spending, making as much profit as possible, and risk of bankruptcy.
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When costs are high enough, you can recoup that, if you have an appetite for risking the downturn.
If the collude to say make the price $1000 for a component that costs them $100(including opportunity costs), then either a new company or a greedy company in the collusion can make their price secretly $900 and get massively more profit.
Right now their opportunity cost is too high.
> risky it is to spin up a new fab
You don't need a new fab. You can build memory in 20 years old fab.
Then that's a cartel and hopefully regulators will act.
They won’t.
They will. DOJ prosecuted memory makers in the late 90s and 2000s for collusion.
This boom is magnitudes higher than before. The attention will be endless.
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Then China will come and eat their lunch. I for one will only buy Chinese RAM from now on, no matter the prices.
>I for one will only buy Chinese RAM from now on, no matter the prices.
Memory is a commodity, so I think you will be very lonely in your quest.
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