You have let’s say Samsung who can make money selling a chip as long as the price > $50. And historically the price of the chip has averaged $100.
But the demand is crazy and they can’t keep up and the price of the chip is $500. They are making money hand over fist but let’s say they feel a moral obligation (hahahahaha) to lower the price by increasing capacity.
So they invest a billion dollars to increase capacity. Now that’s a huge cost that reduces their margin on all chips. Between loans and maintenance, now they have to sell a chip for $90 to break even. But that’s fine because they are making $410 per chip instead of $50!
Except now you fix the supply issue and demand falls to normal. You’ve just cut your profit from $50 to $10. You have to sell 5x the volume to make the money you were making!
Except it’s even worse, because now you have all these extra chips you’re building and nowhere to put them. Supply exceeds demand, pushing prices lower so instead of $100, they are selling for $80. Now Samsung loses $10 on every chip and they go bankrupt trying to pay back a billion in loans.
So it’s not really in their interest to build capacity to meet a temporary demand. Unfortunately.
That still might take 10y because lithography printers aren’t cheap, their location isn’t cheap, and so much more. Once you watch an Intel, TSMC, or Texas Instru… chip factory tour.
Wait, why doesn’t Texas Instrument cash in or did they offshore their production too?
You cant just “fund a startup trying to make ram”. Chip fabrication is probably the most difficult and capital intensive production process there is. What manufacturing more ram looks like is investing tens of billions of real money (not the you give us stock we let you use our GPU deals the AI companies have been doing) and then waiting 5-10 years before the fab you funded starts to make chips, and hope prices are still high by then.
That’s why the existing manufactures are slow to scale up, they arent sure that the current spike in demand will still be there by the time their scaling up increases production.
Yes, but also cartel behavior.
Those same 3 manufacturers have been found guilty of it in the past, and it wouldn’t surprise me one bit if they were fixing prices again now.
See this video by Gamers Nexus.
Of all companies, though, Microsoft is one of the few who could easily afford to sink a few billion into starting in-house chip production.
And even if they only ever produce chips for their own products, they’ll still probably come out ahead in the long run, because of all the money they’ll save on not paying inflated prices for others’ chips to use in Microsoft hardware.
That ‘in the long run’ part is the problem, though. Corps can never see beyond the next quarterly earnings report. An investment that will take years to pay off … that’s just out of the question.
Honestly, no. There is no fast way to spin up fabs for this stuff. A lot of lithography equipment for the top tier stuff is made by 1 supplier, stocking a shitload of fabs with the right gear just isn’t something they can do.
IMHO, the fastest way out of this mess would be for governments to regulate how supply is spilt between consumer and enterprise products.
The “demand” is in the future. It may never be realized. There’s no money in starting a chip fab when there’s only a manufactured shortage. The chip companies aren’t adding capacity because they don’t need it.
Eh … even with the popping of the AI bubble, the long-term future is bright for any new chip manufacturer. The world is only becoming more and more electronic, with more and more gadgets needing advanced chips. When the AI bubble goes boom, demand may temporarily drop, but in the long term demand will rise overall.
The startup cost for a chip fab is MONSTROUS. Add the fact that the incumbents have already been convicted of being a cartel once (or more?), and it’s going to be a heck of an industry to break into. The incumbents just will drop price
Plus it’s not like any of the major companies have been earning consumer appreciation. If a new company started today and offered similar price fora buck less than everyone else I’d buy just for the pleasure of saying I didn’t buy Nvidia
They could start manufacturing ram? Or fund startups trying to make ram?
Seriously is there no way to get out of having only 2-3 chip and memory makers?
They’re going to start up an entire RAM company to fill a temporary shortage?
Yes, then they’ll be shortage resistant
It can’t really work the way to want it to.
You have let’s say Samsung who can make money selling a chip as long as the price > $50. And historically the price of the chip has averaged $100.
But the demand is crazy and they can’t keep up and the price of the chip is $500. They are making money hand over fist but let’s say they feel a moral obligation (hahahahaha) to lower the price by increasing capacity.
So they invest a billion dollars to increase capacity. Now that’s a huge cost that reduces their margin on all chips. Between loans and maintenance, now they have to sell a chip for $90 to break even. But that’s fine because they are making $410 per chip instead of $50!
Except now you fix the supply issue and demand falls to normal. You’ve just cut your profit from $50 to $10. You have to sell 5x the volume to make the money you were making!
Except it’s even worse, because now you have all these extra chips you’re building and nowhere to put them. Supply exceeds demand, pushing prices lower so instead of $100, they are selling for $80. Now Samsung loses $10 on every chip and they go bankrupt trying to pay back a billion in loans.
So it’s not really in their interest to build capacity to meet a temporary demand. Unfortunately.
You don’t need to be “shortage resistant” when there’s no shortage.
That still might take 10y because lithography printers aren’t cheap, their location isn’t cheap, and so much more. Once you watch an Intel, TSMC, or Texas Instru… chip factory tour.
Wait, why doesn’t Texas Instrument cash in or did they offshore their production too?
Fun fact…the chip maker and the calculator company are completely seperate. Don’t really know why it’s fun but well it is a fact.
They’re already selling silicone designed twenty years ago at absurd markup, so Texas Instruments has no need to jeopardize that with the AI fad.
You cant just “fund a startup trying to make ram”. Chip fabrication is probably the most difficult and capital intensive production process there is. What manufacturing more ram looks like is investing tens of billions of real money (not the you give us stock we let you use our GPU deals the AI companies have been doing) and then waiting 5-10 years before the fab you funded starts to make chips, and hope prices are still high by then.
That’s why the existing manufactures are slow to scale up, they arent sure that the current spike in demand will still be there by the time their scaling up increases production.
If only there was something like a chip act that the government could have provided that capital….
Yes, but also cartel behavior. Those same 3 manufacturers have been found guilty of it in the past, and it wouldn’t surprise me one bit if they were fixing prices again now. See this video by Gamers Nexus.
Of all companies, though, Microsoft is one of the few who could easily afford to sink a few billion into starting in-house chip production.
And even if they only ever produce chips for their own products, they’ll still probably come out ahead in the long run, because of all the money they’ll save on not paying inflated prices for others’ chips to use in Microsoft hardware.
That ‘in the long run’ part is the problem, though. Corps can never see beyond the next quarterly earnings report. An investment that will take years to pay off … that’s just out of the question.
Honestly, no. There is no fast way to spin up fabs for this stuff. A lot of lithography equipment for the top tier stuff is made by 1 supplier, stocking a shitload of fabs with the right gear just isn’t something they can do.
IMHO, the fastest way out of this mess would be for governments to regulate how supply is spilt between consumer and enterprise products.
So maybe invest in that and become another top-tier supplier of lithography equipment?
Or just build hardware that’s easier to make
I would gladly go back to 2012-era hardware if it meant I could afford it and people maintained software for it
The “demand” is in the future. It may never be realized. There’s no money in starting a chip fab when there’s only a manufactured shortage. The chip companies aren’t adding capacity because they don’t need it.
Eh … even with the popping of the AI bubble, the long-term future is bright for any new chip manufacturer. The world is only becoming more and more electronic, with more and more gadgets needing advanced chips. When the AI bubble goes boom, demand may temporarily drop, but in the long term demand will rise overall.
The startup cost for a chip fab is MONSTROUS. Add the fact that the incumbents have already been convicted of being a cartel once (or more?), and it’s going to be a heck of an industry to break into. The incumbents just will drop price
Plus it’s not like any of the major companies have been earning consumer appreciation. If a new company started today and offered similar price fora buck less than everyone else I’d buy just for the pleasure of saying I didn’t buy Nvidia
The problem is it doesn’t solve the core issue. What’s to stop an AI data center buying up all the startup’s stock and future stock also.
If you’re the one funding the startup you can just reject that