4 ms·

I find it very telling that both Samsung and SK Hynix already stated that they don't plan to expand capacity - officially to prevent overcapacity in the future.

by atwrk 10mo ago

I find it very telling that both Samsung and SK Hynix already stated that they don't plan to expand capacity - officially to prevent overcapacity in the future. It would also be plausable that both doubt OpenAI will follow through with the contract.

paol 10mo ago
They don't need to expand capacity to fulfill this contract. They would want to expand capacity if they believed this increase in demand is long lasting - the implication is therefore that they don't believe it, or not enough to risk major capital expenditures. You saw the same with GPU makers not wanting to expand capacity during the Cryptocurrency boom. They don't want to be left holding the bag when the bubble pops.
- davey48016 10mo ago
  Oil has been like that as well. High oil prices don't trigger nearly as much drilling as they used to. https://www.cbsnews.com/news/oil-production-prices-us-companies-wont-increase-2022-dallas-fed-survey/ https://www.cbsnews.com/news/oil-production-prices-us-compan...
  - whaleofatw2022 10mo ago
    Part of that equation, FWIW, is that certain countries would flood the market with supply to make any new projects suddenly unprofitable. Which sucks extra bad because if you shut the project down but start it back up you can't just flip a switch. Gotta put together a whole new team and possibly retrain them.
jorvi 10mo ago
"prevent overcapacity" is just a fancy way of saying "we prefer to gouge consumers at little risk to us." Hopefully the Chinese manufacturers ram(p) up rapidly and spike Hynix and Samsung with heavily undercut prices.
- Aurornis 10mo ago
  > prevent overcapacity" is just a fancy way of saying "we prefer to gouge consumers at little risk to us." No it’s not. Memory business has been cyclical for years. Over expansion is a real risk because new manufacturing capacity is very expensive and takes a long time to come online. If they could make new manufacturing come online quickly they would do it and capture the additional profit of more sales.
  - Dylan16807 10mo ago
    Additional profit? They're making a lot more money right now than if they had more supply. The risk of overexpansion is real but I really doubt they want to expand much in the next couple years. They don't have to worry about being undercut by small competitors so they can enjoy the moment.
    - jdxcode 10mo ago
      at these prices, there are certainly potential customers not purchasing when they otherwise would have
      - Dylan16807 10mo ago
        You don't maximize profit by maximizing sales.
    - Nevermark 10mo ago
      No they are making higher margins, but not getting as much profit as they could have. Look at the standard Econ 101 supply-demand curve. If they could make and sell twice as many chips, it would not cut there margins anywhere near half. They would be making much more. When demand spikes up and down there will be pain. Because booms are not predictable, in timing, size or duration. And accelerating supply expansion is very expensive, slow, and risky. Many boom prompted RAM supply expansions have ended in years of unprofitable over capacity.
      - 10mo ago
Aurornis 10mo ago
Expanding manufacturing capacity takes many years. Memory has historically been a cyclical business with boom and bust periods. It’s reasonable for manufacturers to be cautious about deciding to expand. If the demand holds I’m sure they’ll expand. Until then, I think they see it as a short term supply spike.
khannn 10mo ago
I sincerely hope that OpenAI goes down in flames with those DRAM contracts are going to the highest bidder then so probably Google or whatever AI competitor. Honestly having problems remembering the other AI companies without googling it. I recall MS, Facebook, Amazon, Google, and Anthropic.
- anakaine 10mo ago
  They wont be going to highest bidders if they are under contract to produce at the claimed level, unless what you are referring to is the residual.
  - khannn 10mo ago
    I refuse to read the AI slop that passes for journalism about the contracts OpenAI bought, but if they take physical delivery and open actual datacenters built with the RAM they'll be parted out at the minimum, if not absorbed by another AI provider or Big Tech in general.
- bigbuppo 10mo ago
  When OpenAI fails, all the AI projects everywhere else will also be killed. Such is the nature of bubbles. With any luck the farm land where the datacenters were built will be sold back to the farmers for half off and they get a free barn out of the deal.
  - khannn 10mo ago
    The AI projects that make sense will live. Capitalism is survival of the fittest. That farm land is dead and gone, best we can do is urban/rural decay.
    - bigbuppo 10mo ago
      When the AI bubble pops, it's going to take the good parts of AI out with it. Capitalism has never been about the survival of the fittest. That's just weird Nietzschean-Libertarian fantasy where someone ends up blaming the lack of truly free markets for their inability to get a date. Any large building in a rural area will be used as a barn if it has no other useful purpose. It's kind of hilarious when I pass by the old AT&T long lines facility being used as a hay barn.

by atwrk 10mo ago

paol 10mo ago

They don't need to expand capacity to fulfill this contract. They would want to expand capacity if they believed this increase in demand is long lasting - the implication is therefore that they don't believe it, or not enough to risk major capital expenditures. You saw the same with GPU makers not wanting to expand capacity during the Cryptocurrency boom. They don't want to be left holding the bag when the bubble pops.

davey48016 10mo ago
Oil has been like that as well. High oil prices don't trigger nearly as much drilling as they used to. https://www.cbsnews.com/news/oil-production-prices-us-companies-wont-increase-2022-dallas-fed-survey/ https://www.cbsnews.com/news/oil-production-prices-us-compan...
- whaleofatw2022 10mo ago
  Part of that equation, FWIW, is that certain countries would flood the market with supply to make any new projects suddenly unprofitable. Which sucks extra bad because if you shut the project down but start it back up you can't just flip a switch. Gotta put together a whole new team and possibly retrain them.

jorvi 10mo ago

"prevent overcapacity" is just a fancy way of saying "we prefer to gouge consumers at little risk to us." Hopefully the Chinese manufacturers ram(p) up rapidly and spike Hynix and Samsung with heavily undercut prices.

Aurornis 10mo ago
> prevent overcapacity" is just a fancy way of saying "we prefer to gouge consumers at little risk to us." No it’s not. Memory business has been cyclical for years. Over expansion is a real risk because new manufacturing capacity is very expensive and takes a long time to come online. If they could make new manufacturing come online quickly they would do it and capture the additional profit of more sales.
- Dylan16807 10mo ago
  Additional profit? They're making a lot more money right now than if they had more supply. The risk of overexpansion is real but I really doubt they want to expand much in the next couple years. They don't have to worry about being undercut by small competitors so they can enjoy the moment.
  - jdxcode 10mo ago
    at these prices, there are certainly potential customers not purchasing when they otherwise would have
    - Dylan16807 10mo ago
      You don't maximize profit by maximizing sales.
  - Nevermark 10mo ago
    No they are making higher margins, but not getting as much profit as they could have. Look at the standard Econ 101 supply-demand curve. If they could make and sell twice as many chips, it would not cut there margins anywhere near half. They would be making much more. When demand spikes up and down there will be pain. Because booms are not predictable, in timing, size or duration. And accelerating supply expansion is very expensive, slow, and risky. Many boom prompted RAM supply expansions have ended in years of unprofitable over capacity.
    - 10mo ago

Aurornis 10mo ago

Expanding manufacturing capacity takes many years. Memory has historically been a cyclical business with boom and bust periods. It’s reasonable for manufacturers to be cautious about deciding to expand. If the demand holds I’m sure they’ll expand. Until then, I think they see it as a short term supply spike.

khannn 10mo ago

I sincerely hope that OpenAI goes down in flames with those DRAM contracts are going to the highest bidder then so probably Google or whatever AI competitor. Honestly having problems remembering the other AI companies without googling it. I recall MS, Facebook, Amazon, Google, and Anthropic.

anakaine 10mo ago
They wont be going to highest bidders if they are under contract to produce at the claimed level, unless what you are referring to is the residual.
- khannn 10mo ago
  I refuse to read the AI slop that passes for journalism about the contracts OpenAI bought, but if they take physical delivery and open actual datacenters built with the RAM they'll be parted out at the minimum, if not absorbed by another AI provider or Big Tech in general.
bigbuppo 10mo ago
When OpenAI fails, all the AI projects everywhere else will also be killed. Such is the nature of bubbles. With any luck the farm land where the datacenters were built will be sold back to the farmers for half off and they get a free barn out of the deal.
- khannn 10mo ago
  The AI projects that make sense will live. Capitalism is survival of the fittest. That farm land is dead and gone, best we can do is urban/rural decay.
  - bigbuppo 10mo ago
    When the AI bubble pops, it's going to take the good parts of AI out with it. Capitalism has never been about the survival of the fittest. That's just weird Nietzschean-Libertarian fantasy where someone ends up blaming the lack of truly free markets for their inability to get a date. Any large building in a rural area will be used as a barn if it has no other useful purpose. It's kind of hilarious when I pass by the old AT&T long lines facility being used as a hay barn.