‘RAMageddon’ hits consumer electronics as AI drains chip supply

{"text":[[{"start":9.36,"text":"Consumers should expect higher prices on everyday electronics for the foreseeable future, as the AI boom reverses the trend of ever-cheaper and more powerful electronic goods."}],[{"start":19.84,"text":"For decades consumers have enjoyed progressively better electronic devices at lower prices."}],[{"start":26.16,"text":"The AI investment rush has driven up the cost of memory chips and other components, consequently “bucking that trend” said Harvir Dhillon, lead economist at the British Retail Consortium. Apple and other major manufacturers have already put up prices despite the probable hit to sales volumes."}],[{"start":44.44,"text":"“Literally everything” in the consumer electronics category is affected by the shortages, said MS Hwang, research director at the market research firm Counterpoint."}],[{"start":null,"text":"

"}],[{"start":54.88,"text":"The shortages include dynamic random-access memory (DRam) chips, which are crucial components for smartphones, personal computers and video game consoles. Hyperscalers’ demand for DRam has created severe shortages and soaring costs for electronics manufacturers and retailers, analysts say."}],[{"start":73.6,"text":"Seeing this trend, equity investors put billions into chip designers and manufacturers such as SanDisk and SK Hynix, whose share prices rose by 1,000 per cent or more in the year to July. More recently they have sold off on fears the rush could be shortlived as tech companies slow down buying."}],[{"start":93.24,"text":"Despite the more recent scepticism, consumers will still pay the price as the cost of everyday electronics surges. Manufacturers and retailers are raising prices by up to 20 per cent, according to the market research firm International Data Corporation."}],[{"start":108.36,"text":"So steep are cost climbs that users on Reddit’s PC and gaming forums have taken to referring to the memory chip crunch as “RAMageddon” and the “RAMpocalypse”."}],[{"start":117.68,"text":"DRam prices have increased fivefold over the past year, and contract prices are up by 10 to 20 per cent quarter on quarter, according to Counterpoint."}],[{"start":null,"text":""}],[{"start":127.52,"text":"Chipmakers have stopped or slowed production of the lower-end chips found in consumer electronics as they focus production capacity on the high-bandwidth memory chips used for AI."}],[{"start":137.56,"text":"While the shortages are felt most keenly in DRam supply, other semiconductors, including graphics processing units and central processing units, are also being squeezed."}],[{"start":null,"text":""}],[{"start":147.68,"text":"Since the 1970s electronics have become cheaper yet more powerful, owing to progress in semiconductor technology. Moore’s Law, the observation that the number of transistors on a microchip doubles about every two years, meant that computers became more powerful at a cheaper cost."}],[{"start":null,"text":""}],[{"start":164.8,"text":"This is now reversing. In June Apple raised the prices of some of its laptops and tablets by up to $300 for high-end models. The company forecast weaker sales growth owing to constraints in the supply of memory chips and other components."}],[{"start":179.4,"text":"The gaming sector has been particularly hard hit. Console manufacturers such as Microsoft, Sony and Nintendo struggle to absorb costs as hardware is typically sold at a loss, with profits made from sales of gaming software and subscriptions."}],[{"start":193.22,"text":"Even with this model, they have had to put prices up by as much as $150 for a single console in recent months. Nintendo reported unexpected costs of ¥100bn, equal to about 30 per cent of its annual operating profit, in May, citing “rising component costs, particularly for memory”. Shares in Nintendo have fallen by about a quarter in the year to date."}],[{"start":215.24,"text":"Valve, operator of the Steam gaming platform, has slowed production of its handheld Steam Deck device and also put up the price of a new console to cover added chip costs."}],[{"start":225.48,"text":"Mobile phone prices are also rising."}],[{"start":227.44,"text":"Hwang said the price of DRam used in smartphones had gone up by $250 over the past year, which he expected to be passed on to the price of mobile handsets this autumn."}],[{"start":null,"text":""}],[{"start":237.16,"text":"Price rises threaten to slash sales. If a Sony or Microsoft console were to launch at a price of $1,000 and over, compared with current prices around $700, it could see up to a 43 per cent sales volume decline over five years, according to Ampere Analysis research."}],[{"start":253.56,"text":"Alex Baldock, speaking in July before he stepped down as chief executive of Currys, said that the British electrical goods retailer’s stores had “good security of supply in computing and mobile phones to at least September”. But, he added, price rises were inevitable. Baldock declined to comment on the scale of upcoming cost increases."}],[{"start":273.08,"text":"Companies are lowering the specifications of products to get ahead of the component shortage."}],[{"start":277.24,"text":"Justin Hotard, chief executive of Nokia, told the FT that it was redesigning some of its products to reduce the memory component. Hotard said the chip shortage was affecting Nokia’s mobile, broadband and internet-routing equipment."}],[{"start":null,"text":""}],[{"start":290.84,"text":"He described the chip crunch as the “new normal going forward for the foreseeable future” and expected shortages to last through to 2027."}],[{"start":299.96,"text":"Console makers will be “forced to innovate” to get to the market at a lower price, said Piers Harding-Rolls, head of games research at Ampere Analysis. There is renewed talk of in-game advertising to subsidise hardware, as well as new types of subscription bundles, he added."}],[{"start":315.8,"text":"Analysts expect that consumer electronics manufacturers will also raise the specification of their products to match the higher price tag. But the premiumisation strategy is not a viable option for budget electronics retailers."}],[{"start":328.88,"text":"Chinese electronics companies that sell cheaper goods, including Xiaomi, Oppo and Vivo, are “really suffering”, said Hwang at Counterpoint, as their customers cannot easily absorb price hikes."}],[{"start":341.4,"text":"The semiconductor industry is scrambling to build out new factories, or fabs, to meet the new demand."}],[{"start":346.84,"text":"“Our companies are working tirelessly to try to address this,” said John Neuffer, chief executive and president of the Semiconductor Industry Association. He added that new factories take years to build, however. “This is not turning a switch on and suddenly we get the chips rolling off the line,” he said."}],[{"start":364.32,"text":"Hwang advised that consumers with an urgent need for a new electronic device should purchase it as soon as possible. Otherwise, it is best to wait as companies will update product specifications to match the higher prices."}],[{"start":377.16,"text":"Dhillon said that retail sales volumes of computers and telecoms products rose about 40 per cent in the three months to June compared with the same period a year earlier. He attributed this in part to “savvy consumers trying to get ahead of price increases”."}],[{"start":390.64,"text":"However, consumers will buy fewer new devices and hold on to their current devices longer as prices soar ever higher, analysts say."}],[{"start":399.32,"text":"The uplift in prices is anticipated to persist for as long as the AI supercycle lasts. “I think we’re still in the sort of early stages [of price increases],” said Dhillon, adding that “there’s a lot more to come in the pipeline”."}],[{"start":419.36,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788750417_6528.mp3"}