The Impact of Semiconductor Oversupply on Memory Chip Prices

Recent earning reports from tech giants Intel and Samsung reveal a marked decrease in revenue from the consumer electronics sector, largely due to the persistent shortage of memory technology components like NAND and DRAM chips. The COVID-19 pandemic, along with the recent geopolitical conflict in Ukraine and Russia, has disrupted the global supply chain leading to price volatility and exacerbating the shortage. This has resulted in an overstocked memory chip inventory, presenting a major challenge for the semiconductor industry.

These developments raise important questions about the stability of the supply chain for consumer electronics and the impact on engineers who are crucial to the design and development of these devices. The current situation in the electronics consumer market is characterised by a range of challenges, including overstocked memory devices, and highlights the need for a more stable and reliable supply of memory technology components.

What challenges has the electronics consumer market faced, why are memory devices currently overstocked, and how will this affect engineers?

What challenges has the electronics consumer market faced?

Over the last two years, the world has been faced with nothing but continuously more difficult problems. The COVID pandemic saw millions worldwide die from respiratory failure, resulting in a massive global effort to develop vaccines. Trying to protect populations from COVID saw governments introduce numerous lockdowns, all of which put an enormous strain on economies as individuals lost their jobs in droves. In response to the many millions under furlough schemes, governments provided cash handouts, but such handouts were paid for by rapid inflation, which has resulted in rising living costs. To make matters worse, the Russo-Ukraine war triggered a global crisis in gas and oil supplies after western nations placed trade sanctions against Russia. Of course, many western countries are dependent on Russian oil and gas, meaning that these sanctions also hurt consumers in the west.

So, it goes without saying that the past two years haven’t exactly been fun, and because all industries are connected to each other (all relying upon local and global economies), the electronics consumer market has been massively affected by all these challenges. For example, the combination of lockdowns and decisions in numerous industrial sectors (mainly the automotive industry) resulted in massive supply chain issues in the semiconductor industry. This, in turn, saw a massive shortage of key semiconductors, including microprocessors and memory devices.

The Russo-Ukraine war has also been particularly troublesome for some semiconductor manufacturers, as almost 90% of the world’s supply of semiconductor-grade neon gas comes from Ukraine. This doesn’t include the other various gasses and minerals needed to produce semiconductors that also come from Ukraine. In addition to the ongoing conflict, the situation between Taiwan and China also presents a level of uncertainty in the semiconductor industry, as most of the world’s high-end semiconductors come from Taiwan. Even a small attempt by the Chinese to take Taiwan could see massive disruptions in the global market, if not a full-scale war between China and the US. 

Why are memory devices currently overstocked?

In a time where semiconductors are still difficult to get a hold of, it is unusual to hear that memory chips are currently overstocked, with numerous manufacturers having months’ worth of inventory. This oversupply is leading to massive losses, with one such example being Samsung, which recently announced a fall in profit of approximately 50% in Q4 2022 compared to Q4 2021. Such inventory levels are causing massive falls in memory prices (both NAND Flash and DRAM), leaving many to wonder how this will affect the semiconductor industry in the future.

But the cause for this massive fall in price comes from the reduced demand in the consumer market. The rising cost of living is decreasing spending power, and with wages barely beating inflation, consumers are now turning their attention to saving money. As such, luxury items such as TVs and computers are in far less demand, and this is seeing consumer electronics manufacturers wind down production lines. Some market analysts have even likened the sharp decline in memory prices to the 2008 financial crash, which also saw turbulent times for electronic manufacturers.

How will this affect engineers?

In the short term, lower memory prices could be a good opportunity to increase local inventories of commonly used memory devices. However, this would only be economical if those devices are eventually used and can be stored safely (i.e., in a low-humidity environment). These low memory prices will also potentially help engineers reduce manufacturing overheads, thereby increasing the profit of consumer electronic devices. But, considering that memory devices rarely contribute a large proportion of the production cost, this benefit may be minuscule.

Going forward, it is likely that memory manufacturers will scale back their production lines in the hope that they can sell parts currently in their inventories. But this could very quickly lead to yet another component shortage if electronics manufacturers scale up production should there be any sudden demand for new devices. Thus, engineers can expect to see some price volatility in the memory market, and large falls in price are not always a good sign.