Micron is one of the world's largest memory manufacturers, dominating the fields of artificial intelligence and consumer electronics with its industry-leading products. Due to the surge in demand for DRAM memory from the AI industry, memory suppliers are widely considered to bear responsibility for the shortage. To explore this issue, we interviewed Christopher Moore, Vice President of Marketing for Micron's Mobile and Client Business Unit, to understand the current state of the memory shortage.

Our discussions with Moore primarily revolved around how Micron is expanding its capacity and the potential impact on the future consumer and AI sectors.

Our first question to Moore directly addressed user perceptions of the current memory shortage, especially given the significantly more negative user reactions to Micron's exit from its "Crucial" consumer business compared to other vendors. We asked Moore whether memory vendors tend to cater to the demands of the AI industry while neglecting consumers, and here is his response:

First, I want to make it clear that this perception may not be entirely accurate, at least from our perspective. I would never tell anyone what to think or that they are wrong, but our view is that we are committed to helping consumers around the world. We are simply achieving this through different channels. We still have a substantial presence in the client and mobile markets. And of course, we continue to serve our data center customers.

Currently, the TAM (Treaty, Memory, and Availability) and data center markets are growing at an astonishing rate. As a company, we also want to ensure we can help meet this TAM demand.

Micron stated that its OEM consumer channel accounts for a significant portion of the company's market share. For those unaware of this implications, Micron directly supplies LPDDR5 memory modules to integrators like Dell and ASUS, who then repackage these modules into their own reference designs. Moore claims that while the exit from Crucial gives the impression that Micron is "abandoning" consumers, the American manufacturer still maintains a significant share of the consumer supply chain through its OEM model.

Moore states that Micron is approaching all PC brands to supply their memory modules, but the company cannot currently ignore the demand from the artificial intelligence sector. The primary reason Micron and other companies are drawn to the AI industry is the rapidly growing Total Market Size (TAM) for DRAM manufacturers, and as a company, Micron cannot ignore the increasing demand in this area.

Currently, data center construction is booming, and the TAM for enterprise or data center businesses is expanding rapidly, from 30% or 35% to 40%, and now reaching 50% or even 60%. The overall market demand for bits far exceeds previous levels. The entire industry is facing supply shortages. I believe this is something worth paying attention to.

This isn't just a Micron problem; it's an industry-wide problem. We and our peers, or competitors, are doing our utmost to serve these market segments, but supply is far from sufficient. It's certainly a regrettable situation. But I believe it's crucial to make it clear that we are still serving the consumer market.

In his conversation with Moore, he emphasized the undeniable importance of artificial intelligence, while simultaneously highlighting Micron's efforts to meet consumer demand. Unfortunately, the sudden surge in DRAM demand led to supply shortages, leaving companies like Micron with little time to adjust their supply chains. This raises our second important question: should consumers expect fab expansion to alleviate the memory shortage? Moore provides excellent background information to answer this question, which we will explore below.

When we talk about capacity expansion, it's not simply about adding new machines to the supply chain to increase DRAM production. Micron states that the biggest problem causing the current shortage is that they need to find a way to address the issue of varying memory module capacities. Simply put, if Apple needs 8GB, 12GB, and 16GB memory modules simultaneously, Micron needs to adjust its production lines to meet demand, leading to reduced output. Before the advent of artificial intelligence, suppliers had little choice but to meet demand; however, the situation has changed.

You can imagine if a wafer fab had many different machines producing one chip, and then you had to shut down those machines to run on another chip—yield would definitely drop. Of course, the reality isn't that simple, but this is the best explanation I can think of. What we're doing now is minimizing the number of chips, minimizing the number of different DID chips, thereby maximizing yield, understand? So we're working with our customers.

What we're trying to say is, I know you've wanted to upgrade from 12GB to 16GB, or from 16GB to 24GB. But these changes actually reduce our yield. So we're working with them to try to stabilize demand as much as possible, so we can stabilize supply as much as possible and maximize yield.

This clearly confirms our previous reports that laptop and smartphone manufacturers are currently seeking to limit memory configurations. For Micron, this is the best solution in the short term to ensure stable production yields. More importantly, with the rapid development of artificial intelligence, the need for DRAM generational switching is more urgent than ever, given customer computing demands. This means that for Micron, adjusting new equipment and production mechanisms is also happening more frequently.

Moore eventually told us that Micron's fab expansion plans wouldn't have any substantial impact until 2028, given the significant time required for construction and customer certification, and the increasingly complex technology and yield requirements of AI customers.

You're right, these products are in development. But your question is very insightful because to significantly increase bit rates, we need more cleanroom space. And that takes a long time. So three years ago, we broke ground on our ID1 fab in Idaho, which was expected to be operational by mid-2027.

We pushed back the original timeline to the end of 2027, which is mid-2027. But you won't see truly meaningful results until 2028, after we've completed all the certifications, customer acceptance, tooling, and everything is ready.

Memory manufacturers are scrambling to build new production lines, but process limitations are ultimately forcing them to move their timelines forward by several quarters. This means that for ordinary consumers, the DRAM shortage could last for quite some time, or at least until the demand for AI begins to subside. Over the past few weeks, talk of Chinese memory suppliers filling the gap in the memory market has intensified significantly, largely thanks to manufacturers' aggressive push for DDR5 solutions and planned large-scale IPOs. As the world's fourth-largest DRAM manufacturer, Micron reportedly has ample resources to expand DRAM production capacity. This has led to reports that HP may integrate its memory modules into its consumer products.

We asked Moore whether Micron believed Chinese suppliers would erode its market share in the consumer sector. While we didn't name specific suppliers, Moore stated that his company welcomes competition, regardless of its origin.

China's domestic supply capabilities have been developing for several years, and they've done an excellent job, particularly in serving their target markets.

They haven't covered all markets, but they've done an excellent job. I think competition makes us stronger. I've always believed that. If we face competition, it's an opportunity to motivate us to improve, catch up, and continuously progress. So, yes, I welcome competition from any region. The source of the competition doesn't matter. It only makes our company better and helps us better serve our customers.

Our conversation with Micron focused primarily on the memory shortage issue, with a particular emphasis on the consumer side. Based on our discussions, it's safe to say that the DRAM memory shortage is unlikely to ease in the short term. Therefore, suppliers, OEMs, and other parts of the supply chain are all facing difficulties and have virtually no other options.

Like all suppliers, Micron is focusing on wafer fab construction, DRAM process improvements, and supply chain measures to ensure a stable supply, but the "results" of these efforts will take a long time to become visible to the public.

Why aren't chip manufacturers expanding production?

The world needs more memory chips and hard drives. Companies that produce these products have good reason not to rush.

The memory industry has experienced booms and busts, and is now enjoying its strongest boom in years—perhaps in history. The rapid construction of artificial intelligence infrastructure is consuming massive amounts of NAND flash memory, DRAM, and hard drives. This has led to memory shortages in other markets such as PCs and smartphones. "Memory is in a generational supply-demand imbalance," wrote Morgan Stanley chip analyst Joe Moore in a report last month.

Tight supply has driven up prices and significantly boosted the revenue and profits of memory manufacturers. Micron reported record quarterly revenue and operating profit last month, while Samsung said on Thursday it expects its fourth-quarter operating profit to triple year-over-year.

Typically, severe market shortages accompanied by soaring prices force manufacturers to significantly increase production. But memory companies have suffered losses from sharp price fluctuations in the past, so they will proceed cautiously this time.

They have a strong incentive to do so because memory stocks have become a hot commodity on Wall Street. Micron, Seagate, and Western Digital's stock prices are expected to more than double, making them the biggest gainers in the S&P 500 this year. Flash memory maker SanDisk's stock price has surged tenfold since it spun off from Western Digital in February. SK Hynix's stock price has risen 88% in the past three months.

Analysts expect memory chip and hard drive prices to remain high this year, potentially supporting their high market value. However, the industry has historically been subject to brutal cyclical fluctuations, with price drops often leading to losses for manufacturers and causing their stock prices to plummet. This last occurred in 2023, when Micron, Western Digital, Seagate, and SK Hynix all reported annual operating losses. Will this time be different? Perhaps. Companies like Nvidia and AMD, which design AI computing systems, require large amounts of dedicated DRAM to perform these functions. These functions also generate massive amounts of new data, which must be stored on components such as hard drives and flash-based solid-state drives.

According to Bernstein analyst Mark Newman, this has created a "data explosion," predicting that total data storage shipments of NAND flash and hard drives will grow at an average annual rate of 19% over the next four years, compared to an average growth rate of 14% over the past 10 years.

Nvidia and AMD have also accelerated their product cycles, now launching significant new systems almost every year. Upgrading the DRAM memory in these systems helps improve overall performance, surpassing previous generations; Nvidia stated that the Rubin GPU chip, unveiled at CES last week, has nearly three times the memory bandwidth of the Blackwell chips that began shipping last year.

Demand for these systems is ultimately driven by capital expenditures from the world's largest technology companies. These expenditures have reached staggering levels, but there are currently no signs of a slowdown. Based on estimates for the quarter ending last December, total capital expenditures by Amazon, Google, Microsoft, and Meta Platforms will reach $407 billion by 2025.

According to Visible Alpha's consensus forecast, analysts expect this figure to jump to approximately $523 billion this year. "If demand remains this strong, the uptrend could last for several years," wrote Morgan Stanley's Moore.

But memory industry leaders are still haunted by past economic downturns. Therefore, despite severe memory shortage forecasts for other types of electronics, manufacturers like Micron, SanDisk, Seagate, and Western Digital will proceed cautiously with increasing new capacity. Only Seagate plans a significant increase in capital expenditures this year, merely to maintain the company's capital intensity at historical levels, approximately 4% of revenue.

According to FactSet estimates, despite a 44% increase in revenue over the same period, SanDisk expects capital expenditures to grow by 18% for the fiscal year ending in June. At a UBS conference last month, SanDisk CEO David Goeckeler stated that the general lack of long-term supply agreements in the NAND flash memory industry makes it difficult for companies like SanDisk to make long-term investment decisions. Like other types of semiconductors, NAND flash memory chip production takes years to build the necessary infrastructure.

"Perhaps demanders should consider making commitments longer than three months at a time," Goeckeler said at the conference. He added, "We need to adjust the economics to continue investing and avoid experiencing these huge cyclical losses." Some memories are more vivid than others.

Source: Compiled from wccftech

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