A few days back, the prices of SSDs were at their minimal. We reported that the prices might increase due to a decrease in supply as many Taiwanese producers had decreased SSD production. The laws of economics are now against DRAM producers. It is reported that the prices of DRAMs will go as low as 42% of their current prices in the near future. The news may be a relief for consumers as the costs of DRAMs were out of control only a few quarters ago. However, the change in price is not only going to affect the businesses of the DRAM producers, but also many OEM producers will be affected.
According to statistics provided by The Register, the Smartphone sales are expected to have a 2.2 percent decrease by the end of 2019; it is the steepest recorded sales drop in the history of Smartphones. Same can be said regarding the sales of traditional desktops, laptops, and notebooks. The professional market is no different either, servers and big cloud providers had already halted their spending.
Now if we look at the revenues of the semiconductor developers, it is expected that many big manufacturers will lose around 9.6% of the annual income. It is also consistent with the earlier forecast by Gartner. Owing to the eventual decrease in the prices of the DRAMs many producers such as Samsung, SK Hynix, Micron had already taken the required action. However, according to the market statistics, the current supply of DRAMs is enough to overcrowd the coming quarters too.
The forecast is based on the empirical evidence provided by Gartner, the company that previously forecasted lower revenues for many semiconductor producers. The main reason behind the eventual price drop is “slower demand recovery,” which means the market is flooded with DRAMs. OEM producers ordered DRAMs earlier to produce their respective products. Since the overall market of smartphones, laptops, and desktops is following a downward trend, many of these DRAMs could not meet their eventual consumers. Hence, the supply has yet to meet the required demand.
Another reason for the sudden hike in supply could be “middle market agents.” In economic terms, the middle market agents exploit the change in prices of the products to gain respectable margins. Since the prices of DRAM are going to fall eventually, they are trying to sell their products as soon as possible hence the unusual increase in supply.
Lastly, the trade difficulties created by the US and Chinese governments have also aggravated the issue in hand. According to analysts, the implications of the trade war may well have long term effects; the fall in the prices of SSDs or DRAMs is only the start. Ben Lee who is an analyst at Gartner said, “A weaker pricing environment for memory and some other chip types combined with the US-China trade dispute and lower growth in major applications, including smartphones, servers, and PCs is driving the global semiconductor market to its lowest growth level since 2009.“