So check this out. Micron booked more revenue in a single quarter than in any full year of its 50-year history. So they booked basically $41.5 billion and its gross margin hit 85%. That's more than Nvidia's gross margin. And for a brief moment there, Micron as a memory company was worth more than Meta, right? And to add up to all this, so the South Korean government is investing over half a trillion dollars in SK Hynix and Samsung just to increase memory capacity so that they can, you know, own the memory business entirely. And in the midst of all this, Apple is now increasing prices and they're going to China CXMT to get memory capacity, you know. So while the memory boom is creating winners on one side, it's also causing a lot of trouble. So this whole memory crisis is coming to a head now.
Welcome to another Semi Doped podcast. I'm Austin Lyons from Chipstrat and with me is Vik Sekar from Vik's newsletter. Hey Vik, what's up man?
Uh not that much. Just been uh dealing with a memory crisis. I don't know. I'm not dealing with it. Like what do I have to do with it? I'm not buying any devices. My Mac M3 Pro is doing amazing. So, I don't have to buy a laptop or anything, but I am also being more careful with it. I'm not going to drop it any time because if I have to replace that thing, it's terrible. Uh it's the prices have gone up. Apple has raised prices and all that. Um yeah, this was uh basically the entire discussion in uh like the bar yesterday. Hey, I met a bunch of friends um and then we were having a few beers and uh this was the whole discussion is like memory prices, like what has the world come to? Like everybody's talking like LLMs and I mind you I'm not in the Bay Area, okay. This is of course Bangalore is a tech city so it's not unheard of I suppose but it was very fascinating. Everybody's like uh oh man I can't buy a laptop. This is Apple has increased prices. Another friend of mine was like uh I can't even buy musical instruments anymore because you can't buy these synths and stuff because all of them have um you know memory in it. So even musical instruments have gone up, you know. This is serious memory crisis. It's hit the streets.
Totally. Totally man. Yeah. If it's a conversation at the bar then it's truly impacting the consumer.
Exactly. Uh when people start talking about the fact that memory prices from AI are affecting their day-to-day purchases, uh we've uh we we are in trouble now cuz I don't think the general population understood how much memory AI has been sucking up. We've been talking a lot about it on the podcast on and off, right? But uh that's the when it hits the streets like this kind of gives you a visible uh reaction to like you know people asking me to like hey you do the podcast you know what what what's happening with memory. I'm like yeah yeah let me tell you about HBM let me tell you about DRAM you know and they're all like oh wow like is it that much huh and I'm like wow back to you like to me like you know I've been thinking oh so much DRAM we've always been talking it's like second nature. Like memory is short. Yeah. Yeah. We know this. Memory companies are making money. Sure, we get it. You know, we it's in the news all the time for what we do. But for everybody else who is not on this train entirely like we are, uh it's news actually. It's like uh AI is killing my consumer devices.
Yes. Yes. Yes. So uh you know the most simple definition of inflation is just like sustained increased prices for a period of time a year two something. And traditionally when the consumer thinks about like inflation core inflation it's usually like the price of food but it's also like the price of oil essentially like gas and and whatnot. Um and so people, normal consumers, have to tend to pay attention to various random industries based on the things that they buy that cause inflation for them. Um so for example, in the United States, people, if you like to eat beef, you might know that like there's a shortage in the US beef herd or cattle herd. And it's a very random thing, but you're like, "Yeah, because when I go to buy steaks now, it costs way more than it used to." And what's interesting is because of AI, now the normal consumers are going to have to start paying attention, or at least right now they are, to the memory market. Like normal people are gonna have to learn like what is memory? Why is it so expensive? Because to your point, it's just like, yo, I'm just a person that produces music with a synth and suddenly it's expensive. You start pulling on that thread to find out why. And what's super interesting is as much as I love AI, which I totally do, it's interesting to say it as plainly as like AI is causing inflation. Like AI is going to make it so that you know your grandparents who are in the United States that are on a fixed income and using social security for example, their social security dollars don't go as far because the price of certain things have gone up because AI. So it's kind of crazy to think like how it's truly impacting just everyday people around the world, too. It's not a lot of the AI is produced in the United States, but it's impacting people around the whole world, which is also kind of crazy to think.
I think the whole sentiment in the market now because of these increase in memory prices is that when it hits the consumer and when the consumer starts to feel the pinch, the sentiment seems to be that uh people are going to stop buying devices. And as much as we talk about AI and the deployment in data centers and how many GPUs people are buying and how much these data centers are spending, the consumer market is actually very significant. It is a it has always been a very big driver of semiconductor business. So it's not to be discounted or trifled with right. So when the prices become this high and when everybody sees their electronics prices jumping up, the first tendency is like what I said in the beginning, right? Like look I better not drop my laptop because I'm not going to buy anything in these prices and that's the thing that everybody is going to think about as well at least in those lines most people I would think so that what that means is that if people stop buying consumer devices now you're going to have uh demand drop and then the supply will like equalize better and you know once the supply once people stop buying consumer devices some the the market's going to pull back or something. So, you know, people anticipate this because they've seen this happen in the past and so the market kind of softened last week, I think, around this news. That's my interpretation anyway.
Yeah. So, definitely consumers are going to delay purchases or potentially you might depending on what kind of consumer you are, you might say like, well, I have to buy a new laptop like uh like it's at work. It's time to refresh. I have to. They're probably gonna say, "Let's just delay delay a quarter or whatever." Or they might say, "Well, we'll get you that new MacBook still because it's been three years. We promise you that." But we're not going to go all out on memory, of course. Um but yes, it's definitely going to impact consumers. And then the interesting part is it's not only going to impact the low-end consumers, but even high-end consumers. I think that's where it's really interesting is when you have pe, you know, Apple always has like the best customers who are willing to pay the most for the premium experience of having an iPhone. But it it's pretty crazy when even like the the premium customers who are willing to spend three, four, $5,000 on a laptop, even they are saying like, well, I yeah, I guess I better wait or I'd delay it. Let's see. The the question I have is so if we have a drop in demand from all the consumer devices of which there are many and it and it does consume a lot of memory is that actually going to help even out the price memory price I don't want to say gouging but like you know uh increases because the question is is that going to improve supply um or is the supply that extra supply if you will that's not coming from consumers is just going to be sucked up by the AI and the hyperscalers, you know, and all the accelerators who can't get enough, right?
Yeah. The answer to that comes from looking at the supply commitments already that are awaiting these memory companies. It looks like people are like booked out through 2027 at least. Like that's what Micron said in their quarter at least that uh this is not going to let up in 2027 because they have these uh long-term agreements uh and then they also have it as like a somehow like a prepayment clause which is basically that you pay for it whether you take it or not kind of thing right so they're going to continue to make money and AI book orders are in they're all booked up so they have been prepaid for um so even if this softens I don't I don't see why uh it will let up in the near term in the long term I think supply capacity is being built up and when that comes online uh maybe then we will see some something letting up here but up until that point in time I don't see anything changing in the near term but let's let's see how right I am in a year from now we should revisit this episode.
Right but but so you're saying if it's not going to let up in the near term because all of the uh AI accelerator companies are just they're already prepaying for it and they want to suck up any extra supply that's possibly out there whether the supply is from a new fab or the supply is from the lack of consumers buying it. Um that's going to be really hard on consumer device companies because it means that they're going to continue to have this pain. Um and so we you know I know you were you and I were talking earlier about um some companies that are having pain and trying to work around it. So like GoPro for example, tell us about GoPro.
GoPro was such an awesome company. It was such a lifestyle statement to have that GoPro stuff when it came out. You know, you could people were attaching it on their guitar headstocks and then you could see them playing a live show with the guitar moving around. It was so amazing. Obviously, there's all these adventure sports that came out. I even considered it for some time uh mounting it on my surfboard when I lived in San Diego uh so that I could like see you know how it looks as I surf. You know you see these surf videos of people going down the the line and all that. So it was such an amazing concept but today what has happened is they don't have money for memory. They no I mean how much will you pay for a GoPro anyway? It's already something that you don't really need. It's it's a fun thing to have like to do all these crazy things, but nobody really needs a GoPro, right? And now the company uh is become a penny stock. Basically, there's a good chance that they'll actually go under, which is a sad thing because it's a it's a device that had a lifestyle statement at some point. And now the memory prices is driving companies like this out of business, you know. It's it's sad actually.
Yeah, it is sad. But yeah, you make a good point like especially any discretionary spending um where people don't definitely need it, those companies are going to definitely be hurting. Um what about Apple? How are they trying to deal with not passing on such crazy price hikes to customers?
So Apple is actually the the biggest giant of our times, right? Before Nvidia, they were the first trillion dollar company if I remember right. This is a company that has been the uh the gorilla in the room so to speak for decades because they had pricing power. They could always come in and say, "Hey, we're going to sell a billion units. You know, we need this price or we need this performance. We need this capacity." And there were companies before whose sole existence relied on Apple orders. I worked for some of them actually. Uh so their whole existence is whether they make it into the next Apple design cycle or not. And Apple was in a sense brutal with their own business practices. Um it's kind of well known in the industry that they're really really tough to deal with and nobody would if they can avoid it. If they didn't have to make money, they'd rather avoid Apple. But Apple are a tough customer to work with. And this is the first time that Apple has increased product prices midcycle. This is not, you know, a next refresh like next generation that comes in or whatever. They refresh prices in the middle of nowhere like saying now the same product is now more expensive. They've never really done that as far as I know.
Yeah. Yeah. It's pretty wild. Um, now tell me is shouldn't I feel like there's a a a paradox here which Apple is the you know big big company. They make the premium products. They could probably afford to pass on the pricing to their customers the most because they've got the most premium customers, right? So, if if you let's say you were making uh an Android phone and I was making an iPhone and like memory is going to get more expensive like it should be easier for me to pass it on like hey it's things are going to this phone's going to be an extra hundred bucks than for you to pass it on as an Android phone maker because you're like 100 bucks like I can't I can't charge my customers a hundred bucks. But then paradoxically, isn't it Apple who's probably getting the best memory prices because they have such scale? So like is me as Apple, wouldn't my cost for memory actually be less than yours Android maker because because I have such scale or or what do you think there? I mean, I know there's I c I capture Android or I Apple captures a lot of the margin, but I do know that obviously there's uh you know, Samsung and other um Android phone makers that still sell tons of units.
Yeah. So, I think the distinction that we have to make here is premium versus non-premium device. The whole argument that I've been reading in recent times is that premium tier devices are actually okay because they have a high enough selling price that they can absorb the price increase uh in memory and they they'll be fine because of that. Um although their gross margin will reduce but in general yes uh it's it's okay. Now with the Apple price increases, I don't know if Apple wants to hold on to their gross margins and therefore they increase the price of the device in lock step with what memory prices in uh are increasing so that they can retain gross margins and look good in the next uh earning cycle. So it's a gamble, right? Like because people may not buy as many if you increase it. So now you lose on revenue anyway. So that's that's I'm not sure which way they're going. But there was news, I don't know, we've mentioned this on this this podcast too because we've spoken about memory so much. Apple was supposedly buying up DRAM like crazy. They were buying it up at premium prices. If at all they could only lock out their competitors from DRAM, they were going to do it. And if there is a company that could do it, it's Apple with their big, you know, cash reserves. Right.
Right. Right. Right. Yeah. So interesting to think about like, yes, there's price elasticity here. So the the more they increase the price, the fewer people that want to buy it. Um so of course if they could absorb it all, then it wouldn't affect the demand, but then of course it's going to affect their margins. And so you know, always as public companies, you have to play that game of how much of a margin hit do we want to take versus how much of a uh like fewer units do we want to sell? But then on top of it, it's kind of like, well, are investors going to compare them to the previous quarter and say, "Hey, you sold less units than expected or let's say the previous year, you know, year-over-year comparisons are probably best in a seasonal um thing like smartphone sales. Or are they just going to compare them to everyone else and say, "Yeah, your margins went down, but they didn't go down as far as everyone else, so actually we will still reward you for that."
Yeah. Uh the expectation these days has become very AI-centric, right? Like everybody wants a massive increase in uh earnings and massive boosts because the idea is like why would I invest in Apple when I can invest in Micron because Micron is making money. How about I invest in Micron? Uh like you you guys are losing gross margin. So why should I invest in Apple? Like so it doesn't usually investors are not really tied to Apple as a company or anything. They're just there for the money, right? So I mean they're here to make money. So there's a logical thing is to go to the company that makes money. Uh but so I don't know like ultimately it seems like uh even the premium tier was not spared and recently over the weekend there was also the discussion that now Apple is asking CXMT which is a Chinese DRAM manufacturer for uh DRAM supply and this CXMT is actually on the entity list which is a list of you know no companies to to for US companies to do business with in China because those companies are also suppliers to the Chinese military. So you don't want to as a US company give money to a company that then supplies the Chinese military because that's going to bite the US back in the future, right? They'll have a stronger military or whatever. Anyway, so they put CXMT on the entity list and now Apple is asking the US government, can we please get CXMT to give us DRAM because we need the supply. This is like the another first actually because I don't think there's any company who has gone to the US government and said like hey you blacklisted this company but now we actually need to buy from them.
That's imagine Apple actually doing this actually. That's a big deal.
Um yeah. Yes, the things not on my 2026 bingo card. Yes, Apple asking if CXMT could come or any Chinese company could come off the entity list. Um, it just goes to show the lengths that they're willing to go to to prevent the inflation that we talked about. Um, and obviously try to get more supply. Of course, the interesting thing is it's a temporary problem in that like you said, we know more supply is coming online. Um Micron, Samsung, SK Hynix, these guys are building fabs. They're going to come on in 2028, 2029, and so on. If you ask for the uh CXMT to come off the entity list, that's bringing supply on indefinitely. Uh not just to solve this temporary problem, but indefinitely. Um, which of course when you start to game theory this out, you wonder if the big three have on had it on their game theory bingo card uh that CXMT supply could get brought online. But it it I'm sure it does feel like a slippery slope in that it's like yes, you would like more supply right now, but do you want CXMT um DRAM in, you know, a year from now or two years from now? I mean, maybe at that point they just stop buying from them. They just say, "Hey, thank you for your service and for helping us in 2026 even though you're not on the entity list. We don't want to buy from you anymore." But it just Yeah. It's just so interesting to think through all the implications.
Yeah. So now we are the long and short of it is that the premium companies, premium tier companies like the Samsung's, Samsung is a bit different, right? Because they have they they have DRAM supply by themselves uh and they make phones. Think about that like Apple doesn't have Apple doesn't make DRAM Samsung does and they also make phones which is a unique advantage if you come to think of it but you know apart from these premium tier companies uh all what about all the lower mid and low tier they cannot absorb the costs you know so the one thing that will happen in this scenario is that those phones will stay at the same price but it will get de-specced so a phone that was selling for 4GB of RAM or whatever some low tier mid-tier phone will only go with 2GB of RAM now. And so they get de-spec and that is one way to handle the lower tier but nobody likes that. So now you're like okay fine I spend the same amount of money but better get a crappier phone. Right.
Right. Totally. Totally. Um yeah that's a what do they call that when uh in like consumer foods where you you you pay the same but your bag of chips is like half as big.
Yeah. Isn't it a form of inflation?
Yeah. Yeah. Yeah. There's like a funny term for it, but this is the same thing. Um, okay. Shrink shrinkflation. That's what it's called. Shrinkflation. Shrinkflation hits low-end consumer phones. So, you mentioned something interesting. You were It was kind of an aside, but you said, "Oh, Samsung, they make phones. They make memory. They also have a foundry and can make logic chips, right?" So, in theory,
Yes. Exactly. So in theory, Samsung could presumably make quite a lot of uh a phone like you know vertically integrated to some extent and it would be interesting to think that through probably in if you're like kind of doing like the Taiwan China war gaming of like what happens if TSMC goes down you could ask like which smartphone makers are best poised to continue to be able to supply new smartphones and maybe it's Samsung. I think Samsung plays this game too because for profitability they also have to make an internal decision as to where to direct their DRAM supply.
Would you sell it for a nice hefty profit to AI companies or would you sell it into the consumer market and lose money like they will even refuse their own handset division if it comes to it because it's all about you know getting the most out of the DRAM supply you have. So it's very funny actually and you know talking about Samsung and SK Hynix maybe this is a good time to mention this the government itself right the Korean government is investing north of a half a trillion dollars um in DRAM capacity expansion in just these two companies because they realized that these two companies are now hold the key to the AI semiconductor super cycle because yes there's TSMC and there's Taiwan who has the key to manufacturing. Uh yes, there's Nvidia and the US who have the dominance in training chips and also all the other hyperscalers. They're all US-based. All this is good, but what do all of them need in common? What is the one breaking point is memory and who has all the memory? I mean 2/3 it's Korea, right? Like Micron is US, but two-thirds is a Korean-based company like SK Hynix and Samsung. So the Korean government is like all in. They basically pushed all their chips in and said here you go. We are going to own this thing and they're spending half a trillion dollars on it. And then interestingly in other uh Korean memory company news, it's like SK Hynix actually surpassed Samsung for the first time to become the most valuable company in Korea, ending a reign that Samsung has held for 25 years.
So that's the power of memory. So the other thing I wanted to tell you was about Kioxia because Kioxia is not really a DRAM memory company. It's more of a NAND flash maker and they spun out of Toshiba and they recently passed Toyota as the most valuable company in the country. So you can see what AI is doing. Like Toyota it's a big deal like it's in every country but now a NAND flash company that Toshiba actually spun off. What a bad idea. I mean, talk about a bad bet. So funny.
Yeah. Pretty wild. Pretty wild. Things are changing, that's for sure.
Yeah. Yeah. Finally, we have to talk about uh you know Micron. Uh we mentioned it in the cold open obviously, but uh Micron is let's just say for all the people who are suffering in the AI memory crunch, you know, the GoPros going out of business. Uh these I also read about a small company that was making some routers or something. They were selling their routers for like I don't know $500, let's say. And uh now they have to sell it for $2,000 to even stay profitable. And they're like the the the maker like no nobody's going to buy this at $2,000. This is not a product like that. You know, sometimes electronics has a certain intrinsic value. Like nobody buys a laptop for $20,000. You buy a laptop for like I don't know $2,000, right? There's like a logical limit to certain class of devices that you can't just break. So this is like one of them. So for all the suffering that is going on in the memory industry, Micron is among other memory makers is making a killing right.
