Memory chip cycle

The memory chip cycle is the regular rise and fall of memory chip prices, and of memory makers' profits, over periods of a few years. It is also called the memory cycle. Memory chips from different makers are much alike, so buyers choose mainly on price. When supply is short, prices rise sharply and the makers earn large profits. When supply is more than demand, prices fall, sometimes below the cost of making the chips, and the makers lose money. Good and bad years follow each other in turn.

Why are memory chips so alike? There are two main kinds. DRAM is the fast working memory of a computer or phone, which loses its data when the power goes off. NAND flash keeps data without power, in phones and solid-state drives (SSDs). Both are built to shared industry standards, such as DDR5 for DRAM. So a DDR5 chip from one maker can replace a DDR5 chip from another maker in the same laptop. A product that buyers can swap freely between makers like this is called a commodity. Its price is set mainly by supply and demand.

Here is how the cycle works in general. Prices are high, so the makers decide to build new factories and add machines. A memory factory costs more than ₹1 lakh crore and takes two to three years to build and equip. Several makers decide to expand at about the same time. When their new factories start, supply jumps and prices fall. The makers then cut their spending on new factories. Meanwhile, demand keeps growing, because phones, laptops and data centres need more memory every year. After a year or two, supply falls short again, and prices rise. The cycle starts over. Only companies with very deep finances can keep building through the bad years. Today, only three companies make most of the world's DRAM.

Take, for example, a phone maker planning a low-priced model. If memory prices rise sharply between planning and launch, it must raise the phone's price, earn less on each phone, or fit less memory.

Consider an AI server. Its high-bandwidth memory is built from DRAM chips. When memory makers move factory space to HBM for AI, less ordinary DRAM is made for phones and PCs, and its price rises.

Here is a typical case from storage. When flash prices fall, laptops at the same price come with larger SSDs, while hard drives remain the cheapest way to store very large amounts of data.

How is the memory cycle different from the business of a design win? An analog chip or a microcontroller is chosen once for one product, such as a car model, and the same chip is then sold for 10 or 20 years at a fairly steady price. A memory chip is bought again and again, on price, from whichever makers offer the lowest price that quarter.