Morgan Stanley warns of 'chipflation' driving up electronics prices

SEOUL (Yonhap) -- The surge in semiconductor prices, sparked by the artificial intelligence (AI) craze, is leading to 'chipflation' and consequently driving up the prices of other electronic devices such as smartphones and PCs, U.S. investment bank Morgan Stanley warned.

In a report released on Tuesday (local time), Morgan Stanley stated that semiconductor manufacturers have seen memory chip prices surge sixfold over the past year due to their inability to keep up with the demand for AI infrastructure investment from big tech companies.

The report added that semiconductor manufacturers are prioritizing demand from large corporate data centers, pushing demand for electronic devices with relatively lower profit margins to the back burner.

"The problem that started with the AI infrastructure bottleneck is now spreading to issues of profitability for electronic device manufacturers, price burdens, cloud costs, and inflation," Morgan Stanley pointed out, adding, "This crisis has become a macroeconomic concern."

While some semiconductor manufacturers are expanding production capacity, Morgan Stanley predicts this will take several years, considering the cost and complexity of establishing new factories.

Furthermore, unlike the past cycles of boom and bust in the memory semiconductor market, the market's supply and demand situation could be 'continuously restructured' as large cloud service companies or AI companies secure volumes through long-term supply agreements (LTAs) and other arrangements, the analysis showed.

Therefore, existing customers will have to compete for supply in a market with limited, tight, and volatile volumes, Morgan Stanley predicted.

Morgan Stanley analyzed that while the direct impact of these phenomena on consumer prices may be limited, burdens are appearing in producer prices, corporate profits, cloud costs, and capital expenditures.

In fact, companies like Sony and PC manufacturer Lenovo have already raised product prices, and big tech companies have warned of billions of dollars in additional expenditures due to the surge in memory prices.

Microsoft, for instance, stated in April that approximately $25 billion of its $190 billion capital expenditure for the year was due to rising chip prices.

Market research firm IDC forecasts that both the PC and smartphone markets will shrink sharply this year as price increases make potential buyers, especially for low-cost products, hesitate.

Morgan Stanley pointed to the three major memory manufacturers – Samsung Electronics, SK Hynix, and Micron – which control 90% of the global production, stating, "They are benefiting from price increases, expanded profits, and improved outlooks, while device manufacturers must absorb costs, raise prices, or redesign products, otherwise they risk reduced demand."