AI Boom Sparks Global Memory Chip Shortage, Prices to Stay High

Speaking to ANI, Chandak said the strong demand for AI-related applications is pushing global semiconductor companies to prioritise the production of advanced memory chips.

"My view is the memory chip shortage is mainly because of the increased demand for AI workloads. AI workloads require advanced memory chips, including HBM or high bandwidth memory chips," he said.

According to him, the surge in demand has strengthened pricing power for memory chip manufacturers, leading many global companies to shift production capacities toward these high-end chips.

"Demand is very high and pricing power is strong. Many global companies are moving their capacities wherever possible towards these kinds of chips. It is a commercial decision," Chandak said.

However, he noted that this shift has created supply constraints for other segments of the market, including memory chips used in consumer electronics and other applications.

"This creates a shortage for the rest of the market-related chips," he said, adding that sectors such as smartphones, laptops and other electronics are feeling the impact.

Chandak explained that increasing memory chip production capacity is not an easy or immediate solution because semiconductor manufacturing requires large investments and long timelines.

"The demand is so high that even if you have to increase, the incremental thing can happen only 10, 20, 25 per cent as incremental things in the capacity. Because you will do the optimization of the yield, you may do some kind of a little expansion," he said.

He added that significant capacity expansion would take much longer. "If you have to double or triple the capacity, it will take years. Building a memory fab itself takes two to three years minimum, and sometimes even four years," he said.

Because of these structural constraints, Chandak believes the supply tightness in memory chips is likely to persist in the near term, keeping prices elevated.

"In the short term, shortages will continue to remain there, and because shortages exist, prices are going up," he said.

He also noted that companies which secured annual supply contracts with semiconductor manufacturers are relatively protected from the current market volatility.

"Some companies have entered into annual contracts, so they will continue to get supplies," he said.

However, companies that did not secure such long-term agreements may face difficulties in obtaining chips and managing costs.

"Some companies that did not get into annual contracts, they will have to remain at the mercy of suppliers and distributors and including the pricing, which will be a challenge actually," Chandak added.

- ANI