Industry Insights: What causes memory chip prices to fluctuate?

The semiconductor industry witnessed a turnaround in the pricing of storage chips during the second quarter of 2023, injecting renewed optimism throughout the sector. After navigating through challenging adjustments in recent months, certain manufacturers are finally reaping the rewards. The financial reports of major chip giants like Intel and AMD indicate that the worst may be behind us. Encouragingly, optimistic analysts anticipate the gradual recovery of the semiconductor industry either by year-end or in the early months of the following year.

As a resilient cyclical industry, the semiconductor sector has continuously evolved, driven by the interplay of several key factors. Technological advancements have significantly enhanced production efficiency, allowing industrial capacity to adapt to new technologies and market dynamics. Simultaneously, shifts in end-customer and consumer demand have collectively shaped this robust cyclical industry.

A dip in DRAM prices commenced in the third quarter of 2021, with second-quarter averages marking a year-on-year decline of 57%. Yole's chief analyst attributes this supply-demand imbalance and subsequent price decrease to two pivotal factors: customers depleting their substantial inventory levels and the surplus production stemming from the surge in demand during the COVID era. Importantly, memory production cycles are traditionally lengthy (approximately six months), prompting industry adjustments and production planning to span the next half-year. Consequently, as the second quarter of 2022 witnessed a significant downturn, suppliers actively began reducing fab utilization and capital expenditures in 2023. Following a six-month period of adjustment, both DRAM and NAND prices have returned to equilibrium.

Considering the recent positive developments in the storage chip market, it is plausible to expect that even if suppliers initiate production adjustments, their effects may not manifest until at least 2024. Coupled with reduced production efficiency and expanding demand expectations, DRAM prices are poised for a significant upswing.

Furthermore, we will briefly delve into the technical factors driving this surge in demand, offering a clearer understanding of why DRAM is poised to regain the public's attention. According to TrendForce's analysis, the period spanning 2023 to 2024 is poised for rapid advancement in artificial intelligence infrastructure development, with primary demand centered around AI training chips, consequently driving the surge in HBM demand. HBM, despite not being physically integrated within the CPU or GPU, establishes a close and rapid connection through an interposer. It exhibits nearly identical characteristics to RAM integrated directly onto the chip. As the subsequent development phase shifts toward inference, the growth in demand for AI training chips and HBM is expected to stabilize gradually. However, as a high-cost emerging technology, it may not be suitable for all application scenarios. For example, personal PC, CPU tasks often entail high unpredictability, necessitating varied random storage accesses and exhibiting inherent sensitivity to delays. Its requirements for low latency often outweigh those for high bandwidth. Given the significantly higher cost associated with HBM, DDR continues to remain the preferred choice on the PC market. No matter how, the future growing DRAM business will rebuild suppliers' balance sheets and recover from the downturn.

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