the consequences of the earthquake in Taiwan are being neutralized
Last week there was an earthquake in Taiwan, which was reported many times by various media outlets. We will not once again discuss this natural phenomenon, but will talk about its possible consequences on the dynamics of DRAM prices. Experts feared that prices would rise, and greatly, but it seems that everything is not so bad.
What about prices?
After the consequences of the earthquake were assessed in Taiwan, some players in the electronics development and production market began to predict a significant increase in prices for components and devices. But apparently it's not so scary. So, TrendForce report indicates that the consequences of the earthquake were almost completely eliminated.
Firstly, buildings in Taiwan are adapted for earthquakes, since the region is generally seismically active. Secondly, the consequences were eliminated very quickly, so at the moment the overall increase in DRAM prices is 1% – one might say this is a statistical error.
TrendForce analysts assessed five DRAM production plants owned by four suppliers. All of them were affected by the earthquake in one way or another. Among the objects that TrendForce specialists analyzed were two Micron plants and one each from Nanya, Winbond and PSMC. As for the first company, the main damage was caused to equipment for the production of server RAM. Micron produces high-speed HBM memory in Japan. The earthquake did not affect its production. Other companies don't have any particular problems.
Based on the results of studying the situation, a table has been compiled that allows us to judge the consequences of the earthquake on the industrial infrastructure of Taiwan.
The table says that by April 8, the vast majority of manufacturers had restored their previous production volume. Accordingly, there should not be any special consequences of the earthquake. Of course, there is no guarantee that manufacturers will not agree to increase prices – as has already happened and will happen.
At the moment, contract prices for memory have not been updated, which is quite worrying for market players. But still, price adjustments should be moderate. As before, TrendForce analysts claim that the increase in DRAM prices will not be too large – 3-8%, the same forecast was published before the earthquake.
Perhaps prices will rise the most for DDR3, but this will not happen because of an earthquake, but because of a shortage of the product itself. The fact is that most manufacturers began to produce more DDR4 and DDR5 memory, reducing the production of DDR3. But, since hundreds of millions of users still have laptops from previous years with DDR3, the demand for memory is quite high. But production has decreased. Accordingly, the price gradually increases.
Why are prices rising?
The impact of the earthquake is fortunately minimal. But the main problem is that manufacturers have decided to gradually reduce production volume in order to stop or stop the fall in RAM prices.
There were several factors putting pressure on the price of memory:
There has been a shortage of electronic components since the start of the coronavirus pandemic. Corporations and ordinary users began to purchase laptops, computers, smartphones and tablets – both for work and for entertainment. There was almost immediately a shortage of devices and components for them, after which prices rose, as they say, “to the skies.” Then the pandemic ended, and demand began to gradually fall.
The second reason is related to the first. Vendors of electronic components and systems have accumulated huge inventories of equipment in warehouses. As demand began to decline, companies became worried, because obsolescence had not been canceled, and production continued almost at the same level. Accordingly, they began to reduce prices in order to sell off stocks.
The third reason is maintaining the scale of production during the pandemic while demand is decreasing. During the shortage, almost all suppliers of electronic devices and systems increased their shipment volumes. At first, this measure justified itself, but then demand became much lower, and the specter of another crisis loomed – no longer a shortage of electronics, but overproduction.
All the factors mentioned above could lead to an uncontrollable drop in prices for electronics, including, of course, RAM. But manufacturers began to take measures, as mentioned above. In particular, reduce the volume of shipments of new components and devices and quickly sell out warehouse stocks.
If previously production lines were loaded at 100% or even higher (i.e., some reserves were put into operation), now this is not the case; companies are artificially reducing the volume of production of components and devices.
Equipment began to become more expensive, which also affected the components from which PCs, laptops, automotive systems, etc. are assembled.
What will happen in the near future?
It’s difficult to say for sure, but one thing is clear: prices will gradually increase. If nothing extraordinary happens, the increase will be up to 10%. But, of course, there may be other factors affecting prices, so it cannot be guaranteed that prices will remain at the same level.
