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Chinese DRAM Plant Fire Continues To Drive Up Memory Prices 112

Posted by Unknown Lamer from the things-that-go-boom dept.
Nerval's Lobster writes "Damage from an explosion and fire in SK Hynix's Wuxi, China DRAM fabrication plant will drive up global memory prices for PCs, servers, and other devices, according to new reports. Most of the damage from the Sept. 4 fire was to the air-purification systems and roof of the plant, according to announcements from parent company SK Hynix, which predicted the fab would be back to full production in less than a month. The Wuxi plant makes approximately 10 percent of the world's supply of DRAM chips; its primary customers include Apple, Samsung, Lenovo, Dell and Sony. SK Hynix is the world's second-largest manufacturer of memory chips, with a market share of 30 percent, lagging behind Samsung Electronics with 32.7 percent. In an update published Friday, market-research firm DRAMeXchange reported that damage from the fire, smoke and power outages left at least half the plant inoperable or at reduced capacity. The plant is designed to isolate damage in case of disaster so that at least one of its two parallel production facilities can remain online. The facility itself restarted production Sept. 7, according to a statement from the company."
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Chinese DRAM Plant Fire Continues To Drive Up Memory Prices More

Chinese DRAM Plant Fire Continues To Drive Up Memory Prices

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  • How oddly reminiscent (Score:4, Insightful)

    by ddegirmenci ( 1644853 ) on Tuesday September 17, 2013 @04:15AM (#44871041)

    of the flood that hit a couple years ago, halting 70(?) percent of HDD production...

    • Actually it's more reminiscent of the Kobe earthquake except that this time only 10% of the eggs were in one basket rather than the 100% that were in Kobe. Only 10% and it's still effecting market prices??? Does this mean if we burn down Citroen global car prices will go up???

  • Just a couple of weeks before I was planning on building a new computer. Wonderful.

    And since the most interesting, useful, and relevant piece of information was left out of the summary, prices have gone up 27% since the fire.

    • So, a factory that manufactures 10% of the DRAM had to stop production for 3 days, and resumed at 50% capacity afterwards. It means only roughly 5% of the total production has been affected, but prices go up 27%.... Yay for capitalism.

      • Re:Just in time... (Score:4, Insightful)

        by DarkOx ( 621550 ) on Tuesday September 17, 2013 @05:50AM (#44871347) Journal

        How much do you think prices should go up and based on what. A 5% decline in production does not correlate with a 5% price hike.

        DRAM gets faster and denser all the time you don't produce in much excess over the expected demand. So when 5% of the production goes away 5% of the orders go unfilled, if those customers want to keep building their phones, pcs, etc; they have to compete on price to not be the ones that don't get their memory delivered on time. Margins on all those end products get squeezed and used to chase DRAM, and that is what you fight at the retail level.

        So yes yea capitalism for directing the memory to its most profitable use; if you want to criticize capitalism for something you might want to look at why the supply chain is so remote, thin and vulnerable.

      • If production went down 100% (i.e. no more DRAM is produced), would you expect prices to only go up 100% (i.e. double)? I think that supply-demand curves don't look how you think they look...
        • I never said prices should have gone up 5% only, just 27% seems WAY too much.

          • I never said prices should have gone up 5% only, just 27% seems WAY too much.

            Since 95% of the customers are willing to pay 27% more, why is it too much?

            If you think it is too much, there is a simple solution: Don't buy it.

          • It's supply and demand and uncertainty. Since rising prices aren't going to raise supply in the short run, the price (assuming a frictionless market in a vacuum) goes to where only 5% of the market finds it worthwhile to drop out. It would appear that DRAM demand is pretty inelastic, or we wouldn't see that much price movement.

            The other issue is that nobody's quite sure where the prices are going, and that will often produce a short-term change. Purchasers may bid higher than they like to be sure of g

      • They are taking advantage of this (kinda like gas prices). I'm pretty sure if GM had to slow down production Ford wouldn't raise their prices.

        • They are taking advantage of this (kinda like gas prices).

          What do you propose they do instead? Use a lottery to allocate supplies? What would prevent the lottery winners from reselling? Would you be willing to pay higher taxes to police the resulting black market?

      • capitalism doesn't work. its a failed concept. and we are seeing it really fail in our lifetimes.

        nice experiment but can't we declare it a failure and move on to something new?

        oh right, those at the top LOVE capitalism and keep us so misinformed that we continually vote against our own best interests.

        • Re: (Score:1)

          by MrNJ ( 955045 )
          Not just "those on top"
          I immigrated to the USA from the socialist paradise and I am not looking back. As far as RAM - I am quite happy that over the last 20 years the density has increased about 1000-fold, the speed has increased substantially, all at the same price-points. It's no coincidence that the improvement happen in the capitalist economy.

          But keep demanding "bread and circuses" See how that works out.

        • capitalism doesn't work. its a failed concept.

          The market adjustment described in TFA, seems like an example of capitalism working quite well. What alternative mechanism do you propose to allocate limited supplies? A central planning politburo? War?

          we are seeing it really fail in our lifetimes.

          American per capita GDP, adjusted for inflation, has more than quadrupled in my lifetime. That is not a failure.

          nice experiment but can't we declare it a failure and move on to something new?

          What do you propose to replace it with? Kim Jong Un? Raul Castro?

        • Re: (Score:2)

          by AK Marc ( 707885 )
          Much like the USSR wasn't socialism, neither is the US capitalism. Nobody has tried "free market" capitalism. Why? Because it's in the best interests of the capitalists to break it and turn it into fascism (use the capital to buy the government so that the government runs the markets, and in turn is run by the capitalists).

          Fascism and communism are the same thing, the only difference is whether the government is corrupt with power or money. When money is power (or vice versa), then there is no function

    • I'm in a similar fix but it also provides a very nice reply about replacing a system that I just upgraded the CPU in - went from an dual to a quad core in July so instead of building a new system, I'll just upgrade this one to serve me better and no I don't need more performance. Storage is the problem and a pair of 1TB or larger drives will solve that issue nicely.

  • For the supply chain to hike the prices that is .....

    • Re: (Score:2)

      by hlavac ( 914630 )
      They learned a trick or two from hard drive manufacturers it seems... opportunity for all to rise prices at once!

  • This is why terrorists are stupid. (Score:5, Insightful)

    by tlambert ( 566799 ) on Tuesday September 17, 2013 @04:30AM (#44871091)

    This is why terrorists are stupid. Damage an air conditioner, unprotected from a parachutist, on the outside of a DRAM plant = billions of dollars of economic damage.

    • You're assuming that the objective of terrorism is to cause generalised harm. If that was the goal it'd be even easier for them to just stay at home and punch each other in the face.

      A man can dream.

      Anyway, to complete the thought: terrorism is about retribution, and about conveying a political message. Those actions have specific targets, and raising the price of memory does not necessarily affect those targets to the extent or with the specificity demanded.

      • Re: (Score:2)

        by fnj ( 64210 )

        Terrorism is just a tactic in a struggle, and the struggle can be about a lot more than retribution. It can be about degrading the enemy's capability as well as his will and morale. Psychologically manipulating the enemy to get him to incur vast expenses in defense against that terrorism, and damage his own liberty and quality of life is an extremely effective tactic and a brilliant tool in asymmerical warfare. History will be studying the self-destruction of the USA due to 9/11 for a long time. People will

      • You're assuming that the objective of terrorism is to cause generalised harm. If that was the goal it'd be even easier for them to just stay at home and punch each other in the face.

        A man can dream.

        Anyway, to complete the thought: terrorism is about retribution, and about conveying a political message. Those actions have specific targets, and raising the price of memory does not necessarily affect those targets to the extent or with the specificity demanded.

        Terrorism is a form of asymmetric warfare. All warfare is waged with a goal of defeating or disabling or stalling the enemy; whether you measure this as "toppling their government", "evidencing a strong threat of retribution for political intervention in a region/country not their own", or "causing the enemy to engage in domestic expenditures of resources and/or to engage in policies objectionable to its citizenry as a means of causing them to disengage from external matters" is irrelevant.

        The 9/11 attacks

        • Either way, missing 3 months of 50% of the RAM production from Hynix from this FAB is going to hurt us. It is not just a case of the price going up due to diminished supply: lack of supply will impact production of devices using that RAM, and the inability to get supply because it's grabbed up by people with more margin to shrink out will leave some manufacturers with no RAM.

          If you were to hypothetically project a 3 month supply gap window on, for example, all Intel mobile processors, as a result of a simultaneous attack on a, relatively speaking, small number of FAB targets (all that actually necessary is breaking the clean room viability; no loss of life required), you can see what that would do to economies which relied on that production not being interrupted.

          Oh, noze... Limited supplies of new Apple iPhones, Samsung phones/tablets, Xbox One, and PS 4's just before Christmas!!! Oh, the painnnnnn.... Society will come crashing down around us... (grin)

  • It's wise to put your company's future in the hands of people overseas. Nothing could go wrong there.

    • Re: (Score:2)

      by heypete ( 60671 )

      It's wise to put your company's future in the hands of people overseas.
      Nothing could go wrong there.

      Because manufacturing facilities in $YOUR_COUNTRY_OF_RESIDENCE don't ever experience fires or other production-halting mishaps?

      • Exactly. Fires like this don't happen often enough that I would think they would be any less common in a first world country. Also, they had the fire on Sept. 4, and resumed (some) operations on Sept. 7. That's only 3 days of operations being completely halted. In a first world country, because of safety concerns, I could see production being shut down for much longer. Plus, first world countries have all sorts of other things that slow down production. Like unions. Imagine if the workers went on strike

  • Price Increase? BULLSHIT! (Score:5, Insightful)

    by mrpacmanjel ( 38218 ) on Tuesday September 17, 2013 @04:42AM (#44871131)

    So let me get this straight:

    A single manufacturer (2nd-largest market share though) suffers reduced production of chips (silicon not deep-fried - sort of!)
    Manufacturing plant will be operational within a month
    There are other manufacturers that make the same thing
    Another manufacturer has largest market share
    10% world-wide "shortage" is result

    Global prices have to increase?....Sorry, I smell bullshit.

    • Re:Price Increase? BULLSHIT! (Score:5, Insightful)

      by Xtifr ( 1323 ) on Tuesday September 17, 2013 @05:24AM (#44871257) Homepage

      It's worse than that. If this plant produced 10% of the world's supply, and its output was cut in half, that means we've only lost 5% of our normal production.

      • Re: (Score:2)

        by fnj ( 64210 )

        Still worse. Impact is loss of production rate times time. If the loss of production rate is for an almost trivial period, actual impact is slight. For example, if you reduce 10% of production rate by half for one month, the loss of production for that year is only 0.42%.

        CRAPitalism is always such an efficient, unabashed source of self-aggrandizement for the contemptible overlords on easy street at the top. The RAM price will probably shoot up 50% or more for a lengthy period, and do you think any of the fa

      • Very true, but that's 5% of normal production when there's already a shortage. The DRAM market is highly cyclical, so this is coming at the point in the cycle where prices are already on the rise due to a shortage of production, which is just about the worst time for this to happen.

    • Global prices have to increase?....Sorry, I smell bullshit.

      Regardless of the smell, prices will increase. We all know why, but it doesn't matter.

    • Re: (Score:2)

      by LoRdTAW ( 99712 )

      Yep, you are smelling the same bullshit I am and its over 10 years old: http://en.wikipedia.org/wiki/DRAM_price_fixing [wikipedia.org].

    • Re: (Score:2)

      by EvilSS ( 557649 )
      Been here, done this before. It seems like every time DRAM prices get to a certain low point, a factory catches on fire and the prices rebound. It's like clockwork.

      On a side note, am I the only one who read the headline as "Chinese DRM Plant Fire...." ?

    • Re: (Score:2)

      by tlhIngan ( 30335 )

      So let me get this straight:

      A single manufacturer (2nd-largest market share though) suffers reduced production of chips (silicon not deep-fried - sort of!)
      Manufacturing plant will be operational within a month
      There are other manufacturers that make the same thing
      Another manufacturer has largest market share
      10% world-wide "shortage" is result

      Global prices have to increase?....Sorry, I smell bullshit.

      DRAM is a commodity like oil, pork bellies, orange juice, gasoline.

      it's traded on a global scale, and producti

  • inb4 (Score:5, Funny)

    by Hognoxious ( 631665 ) on Tuesday September 17, 2013 @04:56AM (#44871179) Homepage Journal

    inb4 the idiots who don't understand price elasticity [wikipedia.org]

  • Prices through the roof, not because there's a shortage but because the press talks up the perception that there's a shortage.

    Did the price of hard drives ever come back down after the flood ?

    Don't care personally, no RAM upgrades on the horizon and my personal desktop was upped to 32 gig last month

  • Scare tactics (Score:5, Insightful)

    by jklovanc ( 1603149 ) on Tuesday September 17, 2013 @05:14AM (#44871227)

    It is strange how a 5% (a plant producing 10% working at half capacity) reduction in capacity can result in large price changes. This is where I have issue with supply/demand pricing. If one can convince buyers something is scarce the price goes up even when the scarcity is not real.

    • It is strange how a 5% (a plant producing 10% working at half capacity) reduction in capacity can result in large price changes. This is where I have issue with supply/demand pricing. If one can convince buyers something is scarce the price goes up even when the scarcity is not real.

      I'd assume that the 'price' being quoted is spot, which you would expect to be more volatile because of the percentage of the RAM capacity that is allocated to entities who buy through longer-term contracts. If a nontrivial percentage of the production was already spoken for (and by the big customers who you don't want to piss off) well before it rolled off the line, an unexpected reduction in supply is going to be taken out largely on people who have no such arrangements in place.

      The question will be wh

      • and I saw a shining example of this in regards to the Taiwan Floods. Bought a 1TB external drive a few days before the floods and the next week the same drive had increased by $20 even though it had already been manufactured and was on the damn shelf when I'd bought mine.

        Yea! Capitilism works quite well if you want to be screwed.

    • Re: (Score:2)

      by DarkOx ( 621550 )

      Its not always just FUD that runs prices up though. As others have pointed out idle fab capacity is very expensive; so there usually isn't much, and if there was margins on the product would need to be higher to cover it so prices would be nominally higher even if there were fewer shocks.

      So if we assume there is little or no unsold bulk DRAM under normal conditions and there is little extra FAB capacity you might easily have a situation like the following.

      Joe and Bob produce Whatsits, one of their inputs i

    • Re: (Score:2)

      by cbope ( 130292 )

      Two words: artificial scarcity

      For reference, please refer to gas prices at the pump.

    • Re: (Score:2)

      by khallow ( 566160 )
      So what's strange about it? The large price changes are temporary and due to the customers with the most inelastic short-term demand. And it's an oligopoly situation, so the other suppliers have ample means to throttle supply and increase prices, both legally and illegally.
    • There's nothing strange about it at all. You're assuming a straight-line supply/demand curve, and a 45 degree one at that. Real-world supply/demand curves are almost never straight lines, and almost never 45 degrees.

      Commodities like DRAM chips are extremely low margin, so a small decrease in costs can represent a large increase in profit. i.e. a 0.1% drop in cost to produce may not sound like much, but if your profit margin is 0.5%, it's a big increase in profit. Consequently these plants (and the wh

      • This analysis is based on the assumption that a 5% decrease in production can not be made up by other manufacturers. The telling question is whether or not all buyers are being supplied with the chips they need. Is the price increase due to manufacturers not getting part of the fear of not getting parts? If everyone is getting what they need then it is an artificial shortage.

  • Oil does exactly the same thing... (Score:1)

    by Anonymous Coward

    ...make a scare tactic like war or hurricane, drive up prices.

    And do you think the prices will go down after the production is back online?

    They do the same thing with toll levies on road construction. After the road has been long paid for, they keep the cash cow mooing.

  • I don't need memory or RAM.

  • Buy the rumor, sell the news is something that happens in most markets. Sometimes traders trade based on what they believe will happen in a given economic report or event, like this fire. Once the event passes or the report is released, they dump their positions and the market moves.

    Take a look at $SOX, [msn.com] the PHLX Semiconductor Index Fund. [wikipedia.org] it shot up and although it's not specifically tied to memory manufacturers, there's a bullish sentiment on the semiconductor industry over this one little fire. It shot u

  • According to reports, the plant was making GDDR5 chips, used in high memory bandwidth devices like display adapters. This clearly is a perfectly valid reason to raise the prices of DDR3.

  • my 50 dollar DRAM is now 52.50.

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