Why DRAM Chipmakers Need Their Own OPEC (bloomberg.com) 132
DRAM is just as much a commodity as oil. But manufacturers can only dream about the benefits of negotiating supply together. From a report: You've got to feel for the world's biggest suppliers of DRAM. Makers of these chips, which temporarily store information in PCs, smartphones and services, endured years of boom-bust profit swings and bruising competition long before the trade war began. The sector finally consolidated into just three companies holding 95% of global supply of DRAM. And yet earnings stability still eludes them. SK Hynix early Thursday posted an 88% drop in second-quarter net income, the lowest in three years and missing estimates. Investors cheered when the South Korean company concurrently announced that it will slow expansion.
SK Hynix supplies around 30% of DRAM. As much as manufacturers would like to tell you otherwise, these chips are all pretty similar, which is why they're considered a commodity. And with most commodities, like oil, prices shift with supply and demand. Profits, in turn, depend on balancing price and supply against the cost of the multi-billion dollar factories required to churn out these chips. It's no easy task. In fact, profitability is as much a function of game theory as capacity and cost management. If you cut supply while your competitor maintains output, prices may rise -- but most of that benefit goes to your rival and you miss out. If no one cuts supply even when demand is falling, then you're all likely to suffer lower prices, which could drag you into the red.
There's a collection of 14 nations well aware of how this works that came up with an ingenious solution: Sit down and negotiate supply together. Except they're peddling oil, not chips, and the Organization of the Petroleum Exporting Countries can't always see eye to eye.
SK Hynix supplies around 30% of DRAM. As much as manufacturers would like to tell you otherwise, these chips are all pretty similar, which is why they're considered a commodity. And with most commodities, like oil, prices shift with supply and demand. Profits, in turn, depend on balancing price and supply against the cost of the multi-billion dollar factories required to churn out these chips. It's no easy task. In fact, profitability is as much a function of game theory as capacity and cost management. If you cut supply while your competitor maintains output, prices may rise -- but most of that benefit goes to your rival and you miss out. If no one cuts supply even when demand is falling, then you're all likely to suffer lower prices, which could drag you into the red.
There's a collection of 14 nations well aware of how this works that came up with an ingenious solution: Sit down and negotiate supply together. Except they're peddling oil, not chips, and the Organization of the Petroleum Exporting Countries can't always see eye to eye.
Sure (Score:5, Insightful)
If they are not located in the US or EU, otherwise Antitrust laws might teach them something else.
Re:Sure (Score:5, Insightful)
Came here to say the same... it's classic price fixing.
Re: (Score:1)
Oil varies in so many different ways. Heavy crudes vs light crudes amongst other things(I'm not an expert here). Many refineries can only process one type of crude and not the other.
Oil varies far, far more than DRAM ever possibly could.
Grades (Score:2)
Petroleum varies quite widely indeed. In ways that can be defined, so you can define a certain grade of light crude. That's the case with a great many commodities. Consider for example "grade A large eggs", "grade A extra large eggs", etc.
DRAM can be similarly categorized based on both specs and testing.
This would be bad for the consumer. It could certainly be done.
...and it will not work (Score:4, Insightful)
So you might be able to make a short term profit but in the long term, you are going to go under and may even lose much of the short term profit to fines.
Re: (Score:2)
Plus, if you violate anti-trust laws, the EU and US are likely to apply hefty fines and/or tariffs to encourage competition.
So you might be able to make a short term profit but in the long term, you are going to go under and may even lose much of the short term profit to fines.
EU, maybe. US? Have you met the current administration? They've never met a cartel they didn't like. The Sherman Anti-Trust Act hasn't been effectively enforced in a century, and I include the abject failure that was the Ma Bell breakup.
Re: (Score:2)
Re: (Score:1)
Re: (Score:2)
That would be all of the Silicon Valley tech companies whose CEOs don't kiss dear leader's ass, or the ones whose CEOs don't force their employees to kiss dear leader's ass, or the ones whose CEOs' or employees' campaign contributions don't go entirely to dear leader or his minions and supplicants.
Re: (Score:2)
Re: (Score:2)
It will work long term, because the cost of building your own fab is in the hundreds of billions of dollars
Well you are off by almost 2 orders of magnitude smaller. Frankly - NO company has 100 billion to sit around to make a fab. Intel spends in the 5B for a new fab a couple of times a decade.
Re: (Score:2)
Re: (Score:2)
There would be absolutely no motivation to join
Re: (Score:1)
WHich has more power, the hammer or the anvil?
Conan the Destroyer, the riddle of steel
Neither anvil or hammer, but arm
Re:Sure (Score:4, Insightful)
Re: (Score:3)
Micron's last gen DRAM is former Toshiba.
Toshiba dropped the ball on DRAM just months before DRAM started to skyrocket.
Or may be DRAM's skyrocketing 4 years ago was itself a consequence of that.
Taiwan and Korean DRAM makers collude all the time, but either Toshiba or Micron was always "the 4th leg on a tripod"
With that 4th leg lone, everybody saw the writing on the wall and started jacking up prices.
Pretty sure they already tried that. (Score:3, Informative)
Remember around the time of that whole Rambus investigation? There was a price fixing scandal among the big memory producers as well. All of them. From Korea to China to Minnesota. Right after that memory prices dipped again as well, but not as far as they had dipped before the collusion started...
While you're at it (Score:2, Funny)
They should do the same with FLASH and HDDs and with all the new profit they can buy up printer toner and ink suppliers and raise the price on that, and then maybe pencils.Thisn is brilliant; I don't see a downside for anybody.
Re:Sure (Score:5, Insightful)
I saw the headline and said to myself, "Hey kids! Can you say, 'Cartel'?"
Re: (Score:2)
Did you know multiple DRAM companies have been hit by price fixing and cartel like behaviors over the last 20 years, not only in the US, but Canada, European countries, Japan, Singapore and S.Korea. They got the literal shit kicked out of them for doing it. So it shouldn't be a surprise that astroturfing articles like this are starting to pop up again.
why and "OPEC"? (Score:4, Informative)
Call a duck a duck. It's a "cartel" not an "OPEC". (I see that Msmash's vocabulary is lacking.) While allowed under international law, many countries (e.g. Korea, Japan, and the USA) where DRAM manufacturers call home prohibit these types of trade-restricting organizations.
cartels are illegal for a reason (Score:3, Informative)
This is a dumb post. Cartels and market collusion is generally regarded as illegal for a good reason. How well did it work out for consumers when Apple, Amazon, et al came together to discuss pricing and supply of e-books?
Multinational crime (Score:5, Interesting)
To expand, in one country this is considered price fixing, an anti-trust violation, etc...
When you expand it to several countries, somehow it's supposed to be legal?
OPEC only works because 0) most of the members ignore international law and 1) no one wants to piss off the oil producers.
DRAM (or substitute your favorite 'commodity' chip here) makers might not have the same leverage. Can't move the oil deposits, but you can make chips wherever. Of course if this actually happens, they won't be making them in the US.
Re: (Score:2)
Correct. OPEC basically tweaks the supply to maximize prices and profit margins for all its members at the expense of the consumer. This is a path to $6,000 low-end desktop PCs.
Re:Multinational crime (Score:5, Insightful)
The idiot that wrote this article is advocating for price fixing between companies, which is illegal almost everyone on earth. Even China won't put up with it (https://www.reuters.com/article/us-samsung-elec-china/china-launches-dram-chip-price-probe-into-samsung-elec-sk-hynix-and-micron-idUSKCN1J02DI [reuters.com])
Re:Multinational crime (Score:5, Interesting)
OPEC only works because 0) most of the members ignore international law and 1) no one wants to piss off the oil producers.
The members of OPEC are sovereign nations, who can do as they wish with their oil. "International law" is only a set of treaties. It's fundamentally opt-in.
Of course, strong nations can leverage their strength to force treaties onto weaker nations, as the US does with IP law, but as you suggest: OPEC is not weak when it comes to trade.
Re: (Score:1)
Granted, this will not be legal in many countries, and particularly in the USA and EU countries. However, what are the realistic alternatives?
In fact, the risk is that DRAM will consolidate to one manufacturer at some point, and this monopoly will be able to set prices at a level they consider is economically feasible for long-term survival. Government already intervene in many markets e.g. agriculture, to prevent excessive boom and bust.
I think maybe an open cartel might not be a bad idea, provided governm
Re: (Score:2)
Re: (Score:2)
This is easy to see because the power of OPEC has tremendously diminished in recent years with the development of oil sands and more recently fracking which make oil production
OPEC works because they're GOVERNMENTS. (Score:2)
OPEC only works because 0) most of the members ignore international law
No, OPEC works (when it does) because the members are governments. They ARE the law.
Governments are 195 individuals acting in an anarchy. Sometimes they posture about "international law". But all it is is posturing.
Law is what country governments impose on people and groups of people other thans peer governments.
I support this (Score:1)
Yes! (Score:3)
Yes! Let's form a cartel! That'll solve all our problems!
What an idiot.
Re: (Score:2)
The title was funny and misguided enough but the first sentence of the summary was the best:
"You've got to feel for the world's biggest suppliers of DRAM"
No. No I dont.
IN other words... (Score:2)
cartel
noun
an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition.
Rather than compete, they should band together and fix prices. Brilliant!
m
Not really the same commodity (Score:1)
These items are different and price fixing is a really bad idea. The same could be said for SSD's, Harddrives, monitors, televisions, etc.
Let the free market drive things.
Might work with raw materials (Score:1)
Rare-earth and other raw materials suppliers might be able to pull this off, but not those who make finished products.
Well, the DRAM makers MIGHT be able to pull this off if they got in cahoots with the countries that have a collective monopoly on the raw materials. For a long time DeBeers had a de facto monopoly on gem-grade diamonds because they either owned the mining companies or had enough control over enoug of them to shut out other companies. Now, let's see, which dozen-or-so countries have a monop
An answer I gave in a recent interview (Score:3)
Now of course don't pay anything for long distance. International yes, but domestic long distance charges are a thing of the past.
Re: (Score:3)
At a keynote speech for the Society for Computational Economics in the mid-90s, the speaker explained that at that time, the tracking and billing was *two thirds* of the costs of a long distance call . . . the writing was on the wall . . .
hawk
No we don't want a DRAM cartel (Score:3)
DRAM is just as much a commodity as oil. But manufacturers can only dream about the benefits of negotiating supply together./quote.
Right because that is called a cartel and it's generally frowned upon for some very good reasons under anti-trust law. The only reason OPEC can exist is because it's collusion between nation-states and not privately held companies. See Standard Oil if you want to see what happens to private companies that engage in anti-trust violations for an important commodity. I'm sure such a cartel would be hugely beneficial for DRAM makers but they are illegal because they tend to have a negative impact on the end consumer via higher prices are restricted supply.
Try making an actual product again (Score:2)
People want new low cost products?
The private sector floods the market with innovative and low price products.
People buy from a trusted brand. Invest the profit back into getting ready for the next generations of products.
Your company cant keep up?
Thats not the worlds problem.
Hire much smarter workers and try again.
Not a commodity (Score:2)
Oil is a commodity. It is a fundamental thing existing in only specific geographic locations with a finite reserve that is extracted at a rate based on market conditions and demand. Further, it is controlled primarily at the nation-state level because of the consolidated geographic distribution of the resource. DRAM is just another of a million products that can be manufactured within any country that one chooses to invest in. The fact that the DRAM market is cut-throat and involves production in plants
Re: (Score:2)
Agreed. This sort of fierce competition is nothing new to the vast majority of businesses, especially small businesses. Why are DRAM makers so special as to be exempt from the laws of supply and demand, or can fix prices / supply to whatever they want? What a bizarro-land article.
More Cartels (Score:4, Funny)
Why is this a problem? (Score:1)
This is what corporate bonds are for (Score:2)
You don't need a cartel, you need a credit line.
Is this an April fools day prank? (Score:4, Funny)
Or is Bloomberg naturally this out of touch with reality?
Re: (Score:3)
Re: (Score:2)
>"Pro business Bloomberg will always advocate for pro-business ideas regardless of practicality or reality."
That is true, while at the same time (to some, paradoxically, but it really isn't), he and his media giant is solidly "left". This story is very much in-line with such thinking.
Bloomberg is also pumping tons of money in to anti-gun-rights campaigns which disseminate highly inaccurate and inflammatory information.
Re: (Score:2)
Re: (Score:2)
>"Do you have examples of highly inaccurate information?"
Yes, lots. Especially if "very misleading" fits the category (which I think it does, perhaps others don't).
Re: (Score:2)
Re: (Score:2)
>"I donâ(TM)t see any evidence. Did you post it in invisible ink?"
Sorry, busy prepping for upgrading my computer (Ryzen 7 zen2!!) Don't have time right now to go fetch it all and post, especially for an off-topic sub-thread. I doubt it would have any impact here, anyway.
Re: (Score:2)
fuck them and OPEC too (Score:2, Insightful)
Reminder the 9/11 attackers were Saudi Arabians.
Fuck the cartel countries, and fuck a DRAMM cartel. Price tumbling is good for consumer. So oil barons and corporate 1 percenters don't make as much, wah wah wah
They don't need a cartel (Score:2)
They already know how to fix prices [bit-tech.net]
Is This Trolling? (Score:2)
Does the author not understand that cartel profits come at the expense of the consumers who use the product? It would be bad enough if they just restricted supply so we all paid more but dividing up the market means limiting their ability and incentives to bring new tech to market. What would possibly motivate one to worry about these giant multinational companies because they have to deal with fluctuations in profits rather than the consumers who would be hurt by a cartel? Ohh, and DRAM is very much not
When price fixing fails (Score:2)
Re:Bullshit! (Score:4, Insightful)
Given that this article is an opinion piece from Bloomberg from an author whose articles are about competitive pressures and stock prices in the technology sector, calling him or what he's proposing "socialist" is more than a bit of a stretch, I think.
Instead, I think it's more accurate to say Mr. Culpan is thinking of what will make for Shareholder Value, anti-trust laws be damned. That's not very "socialist" at all.
Re: (Score:1)
Definitely NOT socialist. In a true socialism the DRAM makers will be run by the government at chips will be sold at cost+20%. There will be no profit and no shareholders.
Re: (Score:2)
Incorrect. Socialism requires it be run for society as a whole, not just any group. The government can reflect the will of society through democracy or a bunch of people who claim they are thinking about what's best or society (If they are lying, then it doesn't meet the definition of Socialism.)
Re: (Score:2)
Socialism requires the pretense that it be run for society as a whole.
FTFY
Re: (Score:2)
A board of directors is a group. Stockholders are a group.
Socialism requires that it be owned by the people actually doing the work. Communism would have it owned by all of the people (with the 'benevolent' stewardship of the government).
TFA advocates something closer to Mercantilism. It's certainly not anything Smith would recognize as Capitalism and it's not anything an honest economist would recognize as market based.
Anyone who honestly calls themself a Capitalist would look at the situation and cheer th
Re: (Score:1)
Socialist is when the one government dictates the actions of the economy. This is more like cartel capitalism, laisez faire ("let then do") capitalism; basically collusion to do price fixing known from those good old days, to maximize profits at the expense of the end consumers, while having the flexibility to engage in predatory pricing when necessary to block new players from entering the field.
(In capitalism, man exploits his fellow man. In communism it's the other way around.)
Re: (Score:3)
Re: (Score:1, Flamebait)
No, the problem is that many folks like you just accept all the bullshit labels folks place on things without much actual inspection.
Many people espousing Capitalism are really just socialists. They, like you are just using the wrong terms for things because they are being deceitful or they are so stupid that they are bringing about the very things they are afraid of happening in and effort to prevent them.
Often times we find our destiny on the road we took to avoid it! People see a large company and they
Re: (Score:1)
You wrote words, they look like they must mean something, but on closer inspection its just a pile of gibberish. You're just trying to redefine socialism to mean all forms of regulation, but you are wrong. Sorry. Capitalism with regulation is still capitalism. Regulation is not what makes socialism - it is ownership.
Re: (Score:2)
Yes I wrote words, and yes they did mean something, but on closer inspection you are just a pile of gibberish.
I hear most places in the world have free education. Is there a reason you have failed to avail yourself to it?
Re: (Score:2)
Re: (Score:2)
"I saw right through the way you started teaching me now
...You're a very strange man, aren't you, Master Jack?"
So some day soon you could get to use me somehow.
Master Jack, 1967, Four Jacks and a Jill (David Marks)
Re: (Score:1)
The idiots are folks like you.
Conservatives will accept socialist ideas as long as you do not call them that.
Liberals will accepts Capitalist ideas as long as you do not call them that.
One of the primary principals behind socialism is that individual or private ownership of production is controlled instead by the state.
https://www.merriam-webster.co... [merriam-webster.com]
Look at this part of the defnintion
2a : a system of society or group living in which there is no private property
Just because that control is not the state it
Re: (Score:1)
"One of the primary principals [sic] behind socialism is that individual or private ownership of production is controlled instead by the state."
"Just because that control is not the state itself, does not mean it is not socialism."
well, yeah, actually it does. you might say that if the control is a cartel of private actors exerting monopoly control, then the resulting system shares some negative characteristics with socialism. you might call it "crony capitalism" (that seems to be a buzzword nowadays), or y
Re: (Score:2)
I see we have another ArmChair idiot here.
The definition of socialism does not REQUIRE the control to be a State.
https://www.merriam-webster.co... [merriam-webster.com]
2a : a system of society or group living in which there is no private property
If you could just, like you know once in your life, educate your dunning-kreuger ass you might figure out life just a little bit.
Until then you deserve the punishment life delivers you. The real travesty are all children and people in your immediate influence that have to suffer
Re: (Score:1)
What a dope. Dictionaries define words, not political or philosophical theories. You've plucked one sentence from a dictionary and based your whole political argument around it. If you want to know what socialism is, try speaking to a socialist rather than pulling it out your ass.
Re: (Score:2)
It is true that a lot of people have their own definitions on things.
But if you cannot follow what is defined then you cannot win. You can only defeat yourself. I will walk away from this getting ahead in life because I know what the definitions mean to both myself and those like you along with its technical intentions. But you do not know what the definition means to anyone else but yourself. You do not regard its technical intention and you do not regard what it means to others.
This is why I am busy t
Re: (Score:3)
Idiots attempt to redefine terms which they don't understand and which already have a well-defined meaning.
Translation: "Socialism" doesn't mean anything like what you seem to think it does.
Re: (Score:2)
You need to take that up with these guys.
"https://www.merriam-webster.com/dictionary/socialism"
Sure you can use other words like Oligarchy, but an Oligarchy is just another form of Socialism.
Like how an Airplane, Car, Truck, Train, and Submarine are all Vehicles. But I bet you would not get angry if I called all of them vehicles, would you? Maybe you would if the issue became polarized enough.
But in this case the lowest common denominator for Socialism is a Group, it does not matter if it is a State or Go
Re: (Score:2)
Re: (Score:2)
Nope, it's socialism. Go and read the definition.
Once it stops being "private" it's socialism.
I am not right-wing either. That is just another label you are too stupid to understand.
I am mostly libertarian in this regard.
The only regulations we need are strong anti-monopoly and strong anti-trust... which this case belongs in.
The free-market is the most viable system of economic trade we humans can achieve. Monopolies are anti-free market, Cartels like OPEC are anti-free market, regulations like the ones
Re: (Score:2)
Strong Anti-Monopoly and Strong Anti-Trust laws/regulations are not Anarchy you blistering fucking moron.
Anarchy is no fucking control at all.
I am pro-free market as much as can be reasonably had. While Capitalism does not require free-market, free-market requires capitalism.
The pie in the sky is your moronic ass that thinks government is the solution to everything. Government is mankind's #1 enemy and you want it alive and well destroying, killing, and controlling everything on earth.
Have you not noticed
Re: (Score:1)
You have no idea what socialism is. You're a moron.
Re: (Score:3)
Let me help you out.
The mechanism is the same, it's only the label that is different.
A regulatory agency is something we call a Cartel with Government Authority.
A Cartel is just a Cartel without government Authority.
They both can cause you issues when you run into their spheres of influence.
It's like this. You get to vote for how you die, and there are many methods. You can be Starved, Poisoned, Shot, Smothered, Beheaded, Electrocuted, Drowned, Tortured, Dissolved in Acid... I mean the list can go on.
Does