Supply will not meet demand. What incentive do the handful of dram manufacturers have to end the party? This is what happens when legal monopolies finally win control. Dont't worry. The patents will expire in a few decades. Our grandkids will see DDR5 get cheap again. The system functions as intended.
The up-front investment of a memory fab is measured in billions, and takes years to construct and get running. The margin on the chips themselves is terrible, so without scale its not worth even trying. DDR5 is a industry standard that takes some effort to conform to, but the licence fees is a drop in the bucket to the cost of creating a fab.
The fabricators were cautious about increasing production, and slow to start planning. It takes further time to build up capacity, and if the demand drops down, they may end up producing dram at a loss when the market flips over to oversupply. The demand whiplash could kill any company that dared betting on increasing production. See the "bullwhip effect" https://en.wikipedia.org/wiki/Bullwhip_effect which has killed semiconductor fabricators before.
There is a discussion to be had about how to maintain national semiconductor production in Europe and US as a strategic industry, but historic attempts have all failed.
Billions is nothing in this market - if the market is supply constrained in the medium term then the hyperscalers will purchase their own route to manufacture (e.g. through coinvestment).
Also that's not what the bullwhip effect is - although I know what you are saying. The bullwhip scenario is about the effect of communication and batching through various layers in the supply chain, this is more similar to the cobweb effect/theory.
I have fairly simplistic view of the economics involved here. Could you explain why the ability to sell more chips wouldn't be sufficient enough incentive to increase supply?
Not the person you’re replying to, but RAM has historically been a boom-or-bust business, and companies that invest to meet demand during a boom cycle usually have that new capacity come online just in time for the bust.
If it was just variable costs and new capacity was available today they’d do it. But there are substantial fixed costs and delays to increasing capacity, and that uncertainty makes it risky.
That's such a nonsensical argument, it holds for every other business too and in this case it's just a lame excuse for monopolization. If you are that chicken and can't stomach competition you should not be in business anyway.
The current RAM manufactures were convicted of conspiracy to manipulate prices back in the 2000s or thereabout, doing so is their modus operandi, but this time the government is participating in the racket.
Chip manufacturing has unusually long spin-up times, high capital costs and relatively thin margins for anything but the latest and greatest processes, compared to most industries.
There are other boom/bust businesses that have had waves of bankruptcies. The commodity sector is of particular note. You're seeing the same reluctance to spin up new oil rigs in the shale industry for similar reasons, despite record high energy prices.
Bringing on new fabs takes many years and billions of dollars. You're exposing yourself to a lot of risk if you build now and find that the gold rush is over by the time your new capacity is online.
Let's imagine you're drilling oil instead. You have to spend billions of dollars over years finding and developing a new oilfield to make any profit back. And once you have it, you have to continuously spend enormous amounts of money to keep producing it, which means your effective price floor is higher than the current stable price.
Now it's 2021 and someone gets a tanker stuck in the Suez, sending the price of oil sky-high. How long does the ship have to be stuck before you spend those billions of dollars on a bet that it'll recoup before someone gets the ship out?
Although on the flipside, let's pretend it's 2017's and you are Nvidia selling GPU's for Bitcoin - maybe demand will dry up at some point? Do you stop scaling production as this might be the max of the market, or do you follow the market and increase production?
It's always easier to see the right move in hindsight!
Nvidia doesn't own fabs though, TSMC does. By 2017, ASICs for Bitcoin were well underway. Ethereum hadn't switched to PoS, and wouldn't until 2022. For that specific question, the answer is yes, because the GTX 1080 Ti is/was a monster card, and the crypto miners have a somewhat predictable demand for them, so there's some modeling you can do based on demand for the 2016 generation of cards. The question is ofc, if you're Nvidia, what are you optimizing for? Let's say, without foresight that Ethereum would move to PoS in 2022 and that AI would replace that demand, how many 1090 Ti cards do you make, how many 1070s, how many mobile 1080s,
how many Titans?
In order to answer that, someone at Nvidia would have to have, for better or worse, really had to have gotten into cryptocurrency in order to understand that market. Because you, as Nvidia, know how much better the 1080 will be for mining Ethereum, certain predictions can be made on demand.
Question is, without hindsight, 2022 rolls around, Ethereum moves to PoS, do you sell NVDA?
TSMC doesn’t get to take the profit that currently accrues to Nvidia and Apple, even though they absolutely could from a business/leverage perspective, because they are an economic colony of the United states and hiking their prices (which Apple and Nvidia would have almost no choice but to pay, but would upset their benefactors) would jeopardize their national security/defense.
In a world where TSMC is functionally capable of the same level of production but not in such a complicated geopolitical situation regarding semiconductor manufacturing, things would be quite different.
TSMC builds new bleeding edge fabs and then amortizes them for many different customers over a decade or more, starting with higher margin customers (apple, nvidia, etc) and working down as time goes on and the higher margin customers then move on to newer plants. Today's bleeding edge fabs become tomorrow's mass market fabs for lower margin chips that go into cars/toasters/etc. The idea is that the early adopters pay for a decent chunk of the CAPEX and then it becomes a commodity play. It's the same way some auto manufacturers put new tech into their premium cars, then it trickles down to the mass market cars over time.
It's the main reason outsourcing fabs is so much more economical. If NVIDIA built fabs just for itself, the fab's CAPEX would be amortized over fewer components than if a third party did, even if NVIDIA was the largest customer. It's also one of the main reasons Intel fell behind. So much of their cashflow was to build fabs that made an order of magnitude less chips than TSMC. Even worse, they had to write down the CAPEX for the fabs, which affected their financial statements.
Anyways, companies like apple and nvidia have very long term horizons and contracts, which probably have first right of refusal contracts on capacity, etc. In the short to medium term, apple probably isn't paying much more for most components. If this memory shortage lasts decades, they'll eventually end up paying more.
The price has doubled but it takes 10-15 years on average just for the permitting of a new mine in the US.
Offshore drilling for oil is a 7-8 year project.
People in software I think can't but help to have a Laissez-faire bias because software is so Laissez-faire. Most other businesses are highly regulated.
