Expensive memory chips are putting a damper on business. Because reduced production coincides with the global AI boom, prices for laptops and cell phones rose noticeably before Christmas.
The iPhone Duo, Apple's first foldable smartphone, at a launch event in Cupertino. Photo: Andrej Sokolow/dpa
Dusseldorf. Whether computers, smartphones or memory cards: consumers have to dig deeper into their pockets for a number of electronic products during the Christmas season. The reason is the increased cost of memory chips. “The ongoing shortage of semiconductors and memory components is currently making products such as PCs, smartphones and SSDs more expensive,” says a spokeswoman for the electronics retailer MediamarktSaturn.
Manufacturers are increasingly passing on the increased costs. In order to keep margins stable, further price adjustments cannot be ruled out. According to the spokeswoman, how the situation develops depends largely on how quickly chip and memory production stabilizes.
According to market researcher NIQ, almost all product groups that contain memory chips in the area of IT products are affected by the increase in costs. “This effect is already clearly noticeable for customers,” said NIQ expert Andreas Peplinski. The end consumer prices for many IT products have recently risen rapidly.
The chip industry’s “pork belly cycle” drives up costs
The average prices of graphics cards in September were almost twice as high as in the same month last year. Desktop PCs cost 41 percent more, while laptops and tablets recorded double-digit percentage increases. A significant price increase can also be observed for smartphones.
Behind the price surge at the checkout counters is a classic market phenomenon that has characterized the semiconductor industry for decades: the so-called “pork belly cycle”.
The term originally comes from agriculture and the commodity futures market, where high pork prices drove farmers to breed new animals en masse - which months later led to oversupply, plummeting prices and subsequent shortages because breeding cannot be adapted to demand overnight.
Applied to the chip industry, this means: After the extreme boom in demand during the corona pandemic, the global memory market slipped into a deep crisis. The warehouses were full and the prices for main memory (DRAM) and flash memory (NAND) plummeted.
In order to stop the ruinous price decline and avert billions in losses, the dominant industry giants such as Samsung, SK Hynix and Micron pulled the emergency brake: They drastically reduced their wafer production, shut down production lines and froze billion-dollar investment programs for new factories.
The manufacturers' calculations worked out, but now the pendulum is swinging with full force in the opposite direction. Because while supply was artificially limited, demand exploded due to the global expansion of data centers for artificial intelligence. Technology companies are currently buying up memory components in dizzying quantities.
This is exactly where the trap of the cycle comes into play: production that was previously shut down in highly complex semiconductor production cannot be restarted at the push of a button. It takes many months or even years until new production lines are installed, clean rooms are certified and the sensitive production processes are calibrated without errors. In addition, manufacturers are primarily shifting their scarce, reactivated capacities to extremely high-margin special components for AI servers such as High Bandwidth Memory (HBM).
The result is a massive deficit in conventional standard memories that are installed in classic laptops, PCs or smartphones. The drastic supply gap is driving up purchase prices for electronics manufacturers rapidly - a cost explosion that is now reaching end consumers unabated.
Price jump could put a damper on Christmas business
The entire digital industry is feeling the consequences of the storage price surge. According to the digital association Bitkom, the component shortage for memory chips is causing noticeable distress to the IT market. Because the AI boom is tying up enormous manufacturing capacity, there is a lack of reliable calculation bases for electronic devices such as laptops, tablets and PCs - with corresponding consequences for the supply and the price level for end consumers.
Hanover's city center during the Christmas season: consumer advocates warn customers about secret price increases around Black Friday. Photo: Julian Stratenschulte/dpa
The German Trade Association (HDE) is skeptical about the market for consumer goods ahead of the important end-of-year business. According to HDE surveys, the majority of non-food retailers expect worse business than in the previous year, as many consumers calculate more price-sensitively due to inflation and carefully weigh up more expensive purchases in the consumer electronics and IT sectors.
Consumer advocates advise customers to be more vigilant before the shopping days around “Black Friday” and Christmas. When it comes to special offers, buyers should look closely to see whether manufacturers are making hidden price increases - for example by offering entry-level models with lower storage capacity at the previous standard price.
If you want to upgrade or purchase a new device before Christmas, you should use comparison portals and critically examine discounts based on price developments over the past few months. Meanwhile, market analysts do not expect a quick all-clear: industry observers assume that global storage capacities will remain strained well into the coming year and that price levels are likely to remain high for the time being.
