The artificial intelligence-driven demand for memory is driving up the costs of PCs and smartphones.
Micron Technology’s recent financial results provide a glimpse into the way the AI boom has reshaped the global memory markets, with ripple effects on consumer electronics.
Memory-chip manufacturer in the US posted record revenues and operating profits for its first fiscal quarter. This indicates an increasing demand for AI-compatible memory devices.
The surge in demand for memory chip is putting pressure on device manufacturers and ultimately consumers.
Memory supply is being consumed by AI demand
Micron’s fiscal first quarter revenue was $13.6 billion (up 57% compared to last year), and the company expects sales for this current quarter, ending in February, of $18.7 Billion.
This forecast was far above Wall Street’s expectations, reflecting the sharp rise in memory chip prices.
Artificial intelligence (AI) systems are driving the surge, as they require large quantities of memory, especially high bandwidth memory.
AI data centers are growing rapidly and consuming a larger share of the global memory market.
Micron’s executives admitted on their earnings call that the demand for the company is exceeding what it can supply.
It said that it was “more than out of stock” on certain products, and expected the supply of those items to be “substantially below demand in the near future.”
Micron announced earlier this month that it would be exiting the consumer memory market to concentrate on memory chips with high bandwidth, which is used in AI data centres.
The market prices already show this imbalance.
Trendforce reports that the current spot price for a common dynamic random-access module is up more than 60 percent in the last six months. It’s expected to reach $500 by the end of the next quarter, nearly twice the previous price.
Limitation in the ability to increase production quickly
Theoretically, higher prices would encourage manufacturers to increase their capacity.
It takes years to construct a memory manufacturing plant.
Micron will break ground early in the new year on a new facility upstate New York, but it isn’t expected to start production until 2030.
This company has increased its spending in other areas. It plans to spend a record-breaking $20 billion on capital projects this year. That’s roughly twice the average amount it spent annually over the last five years.
Micron cautioned, however, that even with this investment level it will not be enough to meet the demand for AI memory.
Memory costs have increased as a result of the supply constraints.
Memory is required to run every central processor unit, which includes PCs, mobile phones, tablet devices, gaming consoles and many other electronic devices. Manufacturers are therefore under pressure to meet this demand.
Both consumers and manufacturers feel the pinch
Investors are being warned by PC and Smartphone manufacturers.
Jeff Clarke said that Dell would attempt to minimize the impact of increasing component costs, but admitted in its earnings call held last month that the “cost basis” was going up for all products.
Business Insider reports that Dell wants to raise the price of commercial products.
HP warned that memory price increases could cause its operating profit to fall below the range of guidance.
These costs will likely be passed onto consumers.
Counterpoint Research has recently cut their forecasts for smartphone shipments in the world next year. They now expect a modest decline of 2.1% instead of a growth.
It is especially difficult to time premium phones with AI functions, as they require more memory.
It is not just about phones or PCs.
Nintendo’s shares fell sharply on concerns over memory costs associated with its new-generation Switch console.
Analysts believe that an extra $40 in memory costs per unit could have a significant impact on the profits of the company, increasing the likelihood of a price increase.
The structural change, not the short-term spike
Micron’s results show that it isn’t a short-term supply problem.
According to the company, in three years’ time the market addressable for high-bandwidth memories could reach $100 billion.
As long as AI investments remain strong, and the supply is struggling to catch up with demand, higher prices may continue for consumers.
The post Why Smartphones and computers are going to be expensive in the next year may change as new information is revealed.
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