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>As the memory industry is still recovering from the challenging environment in 2023, this tight supply environment will help drive the considerable improvement

>As the memory industry is still recovering from the challenging environment in 2023, this tight supply environment will help drive the considerable improvements in profitability and ROI (return on investment) that are needed to enable the investments required to support future growth. The problem is that they need actual chips tomorrow. I fear we are reaching the point in the semiconductor industry where, in order to sustain the revenue growth propping up their valuations, they're going to have to start selling future chips that cannot possibly be physically produced.

freeone3000 2mo ago
The alternative is they could charge more. They could. And people would pay it.
- vannevar 2mo ago
  The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist. Now, you could raise prices to the point where you destroy demand. But that's a tricky window to maneuver through.
  - boredatoms 2mo ago
    For consumers they’re already destroying demand
  - fn-mote 2mo ago
    > The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. Do you mean because of the production lead time, higher prices won’t result in increased production? Commodities like corn have been managing this for a long time… what’s special about chips? What is your actual argument?
    - JoeAltmaier 2mo ago
      It takes a billion dollars and years to produce a new chip fab line. So no, it cannot just be produced for you on a dime.
      - XorNot 2mo ago
        Also supply contracts exist which is what started all this: OpenAI signed huge orders for most of the market all at once. No one had any chance to properly include that information in their pricing or bidding.
    - juiceland 2mo ago
      [flagged]
    - DannyBee 2mo ago
      Corn is heavily subsidized,also has (in the US) federally prvided insurance programs against plunging prices, has paid uselessness(ethanol). Despite all of this corn has caused massive agriculture bankruptcy/takeover when it has failed anyway. So it's more "what's special about corn". It is also fairly hilarious to claim the parent is denying basic economics and then bring up corn as an example of having successfully managed economics. If the scales were not being thumbed, and "basic economics" were in play, corn would be in very very bad shape. In the case of DRAM, there is an incredibly long history of these gloom/glut cycles, and they have stayed roughly the same timeframes (~3 years) since the 1990's. Almost all the ones who have survived this long are either in the same kind of boat as corn - protected in various forms from the downside - or don't increase production and get caught out until they are absoultely forced. The very temporarily increased profit is not worth going bankrupt for - they make more money long term by being very cautious and know this. There are a near infinite number of economic studies you could look at (and several sibling comments cite some) - DRAM manufactuers don't chase the price and probably couldn't anymore if they want to. None of this denies basic economic theory, of course, since economic theory is not exactly "rigorous", even to the degree it could be (IE even the parts that are pure analysis of data rarely reproduce!).
      - 2mo ago
  - HWR_14 2mo ago
    It could be tricky. Or, since supply (in the short term) is pretty well established, they could just auction off chips.
  - HumblyTossed 2mo ago
    If you can only make X number of widgets, you must increase the price until demand stabilizes at X.
    - docjay 2mo ago
      Why must you increase the price?
      - LoganDark 2mo ago
        Because if you take orders otherwise you won't be able to fulfill them.
      - somat 2mo ago
        It is the other way around, When people want something they are willing to pay more for it. The manufacturer wants to sell to the person that will pay the most. While the person wants to buy from the manufacturer that charges the least. As such when the manufacturing capacity is below demand the price goes up until the item is worth what people will pay for it(at large, statistically, it works like an auction). The promise of capitalism is that as the price goes up it should incentivize manufacturing capacity to go up and as the capacity meets demand and the manufactures start to fight each other to be the one to sell the item the price goes down. Sometimes this works and sometimes it does not.
        docjay 2mo ago
        Thank you for taking the time and effort to provide a clear explanation. I’m familiar with supply and demand though. My emphasis was on “must” as a lazy protest against greed being considered a mandatory part of capitalism. Prices don’t have to go up, someone just wants more money. If you happily sell apples for $1 and see a hungry person walking towards you, must you raise the price? I think that basic thought gets lost sometimes when people talk about shortages causing the price to increase. The shortage didn’t cause anything, some executive decided they want more money. That’s all. There’s nothing inherent in the system that requires it. Whether that’s OK or not is up to the reader, I just think people lose sight of the reality and talk about it like it’s gravity, rather than simple decision making.
  - daishi55 2mo ago
    I don’t understand how there being essentially unlimited demand for their products that far exceeds supply and is driving up prices accordingly is somehow a bad sign for the industry? > Now, you could raise prices to the point where you destroy demand. You know supply and demand is like a curve right, you can find an optimal equilibrium? It’s not a cliff that you can fall off.
    - Jgrubb 2mo ago
      I guess we'll see about that.
      - daishi55 2mo ago
        Yes, I guess we will find out if high demand for their products is good or bad for an industry.
    - doubletwoyou 2mo ago
      It’s ideally modeled as a curve, but things are never that simple in real life.
    - vannevar 2mo ago
      "Demand destruction" doesn't literally mean all demand is destroyed; it refers to the demand curve you reference. But as a sibling commenter notes, real business is rarely as clean as an econ textbook. In the real world, a supplier can contract to supply more units than they can actually produce. Their customers rely on the representation to make other related deals. And of course, the supplier can book the contracted revenue, causing investors to rely on the forward sales. They can't raise the price at that point, it's fixed in the contract. So if it turns out they physically can't deliver when the time comes, some number of the deals have to be blown up, causing related deals to blow up, etc., etc. That is the risk I was referring to.
      - noduerme 2mo ago
        Or: Supply and demand oscillate in a delayed way based on each other. A quick increase or decrease in one side takes time to ripple, and by the time it does, the organization may have reversed course. An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online. It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
  - sidewndr46 2mo ago
    Aren't the advertised prices just a number now? When OpenAI or some other big player comes to buy months worth of production capacity, they aren't doing it at a publicly advertised price.
  - thegrim33 2mo ago
    >> Now, you could raise prices to the point where you destroy demand Isn't that topic .. the first chapter of any economics 101 course? Supply and demand and how they influence each other? You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts?
    - vannevar 2mo ago
      >You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts? Nonetheless, even after all these hundreds of years of economic study, companies still make mistakes (and occasionally, commit fraud). And we still have massive economic crashes. If only everyone understood the "basic concepts", all of this would go away and we would achieve 100% economic efficiency at all times. What a pity.
- HumblyTossed 2mo ago
  This is what consumers are always told. Prices go up as demand goes up or scarcity increases.
  - sandworm101 2mo ago
    But once you get past econ101, you are taught how markets react to percieved bubbles, how those with near monopolies would rather pocket a windfall now than risk investing in future expansions.
    - dismalaf 2mo ago
      Well, look at AI. It sure looks like a bubble, why wouldn't every fab just profiteer now?
      - scrtm 2mo ago
        micron is up to like 85% gross margin this year
        dismalaf 2mo ago
        Yes, when demand spikes prices rise.
        scrtm 2mo ago
        sure, but spikes are sharp and demand is expected to continue outpacing supply/capacity for the foreseeable future afaict
- toss1 2mo ago
  Paying more would not help you when there is no more supply. It is a zero sum game. Maybe you could pay someone else who is less desperate to part with some, but that does not increase supply. Nine women cannot produce a baby in a month, even though you could average about one per month if you wait about nine months.
adastra22 2mo ago
We saw this play out in Bitcoin mining years ago.
re-thc 2mo ago
> The problem is that they need actual chips tomorrow. They need it today. Best if it was NOW!
pmontra 2mo ago
But maybe no customer will be there to actually buy, because cash flows could crash their businesses. So options on chips? Call or put?
- codingrightnow 2mo ago
  Call, then put.
- Y_Y 2mo ago
  Silicon wafers and fab time are the new pork bellies and onion futures.
egorfine 2mo ago
> start selling future chips So, another futures commodity on CME.
baby_souffle 2mo ago
> they're going to have to start selling future chips that cannot possibly be physically produced. This is already happening with gpus, no? Tsmc and McDaniel capacity are sold out into the future. Data center that might not be needed in 1 to 3 years is where they’re headed.
- i_never_listen 2mo ago
  Yes, everything so far points to about half of 2026 capacity being delayed or cancelled. How much of that is due to construction delays or the power requirements being brought online I don't know, but those are the main culprits (plus possibly hubris on the AI companies part regarding demand)
justin66 2mo ago
> they're going to have to start selling future chips that cannot possibly be physically produced. …but that would be unethical. cue the laugh track
- syncsynchalt 2mo ago
  Contracting for more chips than you can make isn't a fun situation to find yourself in, nobody is doing it for profit (it's actually quite expensive in time, money, and reputation to litigate the fallout). It happens due to failed estimates (we thought we could start production in January but we couldn't figure out the process until March), upstream supply failures (our surface-mount supplier can't get us enough capacitors), or global market conditions (concrete and steel unexpectedly doubled in price and we can't afford to build the whole building this year). It happens all the time and isn't your fault (but it is your responsibility to handle).
  - vannevar 2mo ago
    >Contracting for more chips than you can make isn't a fun situation to find yourself in, nobody is doing it for profit (it's actually quite expensive in time, money, and reputation to litigate the fallout). This is true in the ordinary course of business. But we may be in an extraordinary situation where, if the chipmakers do not overcommit, their stock price collapses today. Given the choice between blowing up now or blowing up 2 years from now, these companies may very well be choosing to blow up in the future. A lot could happen in the meantime, including bankruptcy of their customers. Which would certainly solve their overcommitment problem.
i_never_listen 2mo ago
Do they really need them tomorrow? Or everyone is locking in supply to ensure that they have the chips if the data center actually gets built in the next few years?
- vannevar 2mo ago
  This is a great question. Data center demand != AI demand. And chips sales at this point is driven by data center projects, not directly by AI demand.
thaPintYo 2mo ago
[dead]

freeone3000 2mo ago

The alternative is they could charge more. They could. And people would pay it.

vannevar 2mo ago
The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist. Now, you could raise prices to the point where you destroy demand. But that's a tricky window to maneuver through.
- boredatoms 2mo ago
  For consumers they’re already destroying demand
- fn-mote 2mo ago
  > The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. Do you mean because of the production lead time, higher prices won’t result in increased production? Commodities like corn have been managing this for a long time… what’s special about chips? What is your actual argument?
  - JoeAltmaier 2mo ago
    It takes a billion dollars and years to produce a new chip fab line. So no, it cannot just be produced for you on a dime.
    - XorNot 2mo ago
      Also supply contracts exist which is what started all this: OpenAI signed huge orders for most of the market all at once. No one had any chance to properly include that information in their pricing or bidding.
  - juiceland 2mo ago
    [flagged]
  - DannyBee 2mo ago
    Corn is heavily subsidized,also has (in the US) federally prvided insurance programs against plunging prices, has paid uselessness(ethanol). Despite all of this corn has caused massive agriculture bankruptcy/takeover when it has failed anyway. So it's more "what's special about corn". It is also fairly hilarious to claim the parent is denying basic economics and then bring up corn as an example of having successfully managed economics. If the scales were not being thumbed, and "basic economics" were in play, corn would be in very very bad shape. In the case of DRAM, there is an incredibly long history of these gloom/glut cycles, and they have stayed roughly the same timeframes (~3 years) since the 1990's. Almost all the ones who have survived this long are either in the same kind of boat as corn - protected in various forms from the downside - or don't increase production and get caught out until they are absoultely forced. The very temporarily increased profit is not worth going bankrupt for - they make more money long term by being very cautious and know this. There are a near infinite number of economic studies you could look at (and several sibling comments cite some) - DRAM manufactuers don't chase the price and probably couldn't anymore if they want to. None of this denies basic economic theory, of course, since economic theory is not exactly "rigorous", even to the degree it could be (IE even the parts that are pure analysis of data rarely reproduce!).
    - 2mo ago
- HWR_14 2mo ago
  It could be tricky. Or, since supply (in the short term) is pretty well established, they could just auction off chips.
- HumblyTossed 2mo ago
  If you can only make X number of widgets, you must increase the price until demand stabilizes at X.
  - docjay 2mo ago
    Why must you increase the price?
    - LoganDark 2mo ago
      Because if you take orders otherwise you won't be able to fulfill them.
    - somat 2mo ago
      It is the other way around, When people want something they are willing to pay more for it. The manufacturer wants to sell to the person that will pay the most. While the person wants to buy from the manufacturer that charges the least. As such when the manufacturing capacity is below demand the price goes up until the item is worth what people will pay for it(at large, statistically, it works like an auction). The promise of capitalism is that as the price goes up it should incentivize manufacturing capacity to go up and as the capacity meets demand and the manufactures start to fight each other to be the one to sell the item the price goes down. Sometimes this works and sometimes it does not.
      - docjay 2mo ago
        Thank you for taking the time and effort to provide a clear explanation. I’m familiar with supply and demand though. My emphasis was on “must” as a lazy protest against greed being considered a mandatory part of capitalism. Prices don’t have to go up, someone just wants more money. If you happily sell apples for $1 and see a hungry person walking towards you, must you raise the price? I think that basic thought gets lost sometimes when people talk about shortages causing the price to increase. The shortage didn’t cause anything, some executive decided they want more money. That’s all. There’s nothing inherent in the system that requires it. Whether that’s OK or not is up to the reader, I just think people lose sight of the reality and talk about it like it’s gravity, rather than simple decision making.
- daishi55 2mo ago
  I don’t understand how there being essentially unlimited demand for their products that far exceeds supply and is driving up prices accordingly is somehow a bad sign for the industry? > Now, you could raise prices to the point where you destroy demand. You know supply and demand is like a curve right, you can find an optimal equilibrium? It’s not a cliff that you can fall off.
  - Jgrubb 2mo ago
    I guess we'll see about that.
    - daishi55 2mo ago
      Yes, I guess we will find out if high demand for their products is good or bad for an industry.
  - doubletwoyou 2mo ago
    It’s ideally modeled as a curve, but things are never that simple in real life.
  - vannevar 2mo ago
    "Demand destruction" doesn't literally mean all demand is destroyed; it refers to the demand curve you reference. But as a sibling commenter notes, real business is rarely as clean as an econ textbook. In the real world, a supplier can contract to supply more units than they can actually produce. Their customers rely on the representation to make other related deals. And of course, the supplier can book the contracted revenue, causing investors to rely on the forward sales. They can't raise the price at that point, it's fixed in the contract. So if it turns out they physically can't deliver when the time comes, some number of the deals have to be blown up, causing related deals to blow up, etc., etc. That is the risk I was referring to.
    - noduerme 2mo ago
      Or: Supply and demand oscillate in a delayed way based on each other. A quick increase or decrease in one side takes time to ripple, and by the time it does, the organization may have reversed course. An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online. It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
- sidewndr46 2mo ago
  Aren't the advertised prices just a number now? When OpenAI or some other big player comes to buy months worth of production capacity, they aren't doing it at a publicly advertised price.
- thegrim33 2mo ago
  >> Now, you could raise prices to the point where you destroy demand Isn't that topic .. the first chapter of any economics 101 course? Supply and demand and how they influence each other? You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts?
  - vannevar 2mo ago
    >You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts? Nonetheless, even after all these hundreds of years of economic study, companies still make mistakes (and occasionally, commit fraud). And we still have massive economic crashes. If only everyone understood the "basic concepts", all of this would go away and we would achieve 100% economic efficiency at all times. What a pity.
HumblyTossed 2mo ago
This is what consumers are always told. Prices go up as demand goes up or scarcity increases.
- sandworm101 2mo ago
  But once you get past econ101, you are taught how markets react to percieved bubbles, how those with near monopolies would rather pocket a windfall now than risk investing in future expansions.
  - dismalaf 2mo ago
    Well, look at AI. It sure looks like a bubble, why wouldn't every fab just profiteer now?
    - scrtm 2mo ago
      micron is up to like 85% gross margin this year
      - dismalaf 2mo ago
        Yes, when demand spikes prices rise.
        scrtm 2mo ago
        sure, but spikes are sharp and demand is expected to continue outpacing supply/capacity for the foreseeable future afaict
toss1 2mo ago
Paying more would not help you when there is no more supply. It is a zero sum game. Maybe you could pay someone else who is less desperate to part with some, but that does not increase supply. Nine women cannot produce a baby in a month, even though you could average about one per month if you wait about nine months.

adastra22 2mo ago

We saw this play out in Bitcoin mining years ago.

re-thc 2mo ago

> The problem is that they need actual chips tomorrow. They need it today. Best if it was NOW!

pmontra 2mo ago

But maybe no customer will be there to actually buy, because cash flows could crash their businesses. So options on chips? Call or put?

codingrightnow 2mo ago
Call, then put.
Y_Y 2mo ago
Silicon wafers and fab time are the new pork bellies and onion futures.

egorfine 2mo ago

> start selling future chips So, another futures commodity on CME.

baby_souffle 2mo ago

> they're going to have to start selling future chips that cannot possibly be physically produced. This is already happening with gpus, no? Tsmc and McDaniel capacity are sold out into the future. Data center that might not be needed in 1 to 3 years is where they’re headed.

i_never_listen 2mo ago
Yes, everything so far points to about half of 2026 capacity being delayed or cancelled. How much of that is due to construction delays or the power requirements being brought online I don't know, but those are the main culprits (plus possibly hubris on the AI companies part regarding demand)

justin66 2mo ago

> they're going to have to start selling future chips that cannot possibly be physically produced. …but that would be unethical. cue the laugh track

syncsynchalt 2mo ago
Contracting for more chips than you can make isn't a fun situation to find yourself in, nobody is doing it for profit (it's actually quite expensive in time, money, and reputation to litigate the fallout). It happens due to failed estimates (we thought we could start production in January but we couldn't figure out the process until March), upstream supply failures (our surface-mount supplier can't get us enough capacitors), or global market conditions (concrete and steel unexpectedly doubled in price and we can't afford to build the whole building this year). It happens all the time and isn't your fault (but it is your responsibility to handle).
- vannevar 2mo ago
  >Contracting for more chips than you can make isn't a fun situation to find yourself in, nobody is doing it for profit (it's actually quite expensive in time, money, and reputation to litigate the fallout). This is true in the ordinary course of business. But we may be in an extraordinary situation where, if the chipmakers do not overcommit, their stock price collapses today. Given the choice between blowing up now or blowing up 2 years from now, these companies may very well be choosing to blow up in the future. A lot could happen in the meantime, including bankruptcy of their customers. Which would certainly solve their overcommitment problem.

i_never_listen 2mo ago

Do they really need them tomorrow? Or everyone is locking in supply to ensure that they have the chips if the data center actually gets built in the next few years?

vannevar 2mo ago
This is a great question. Data center demand != AI demand. And chips sales at this point is driven by data center projects, not directly by AI demand.

thaPintYo 2mo ago

[dead]