(Yahoo!Finance) - Memory maker Micron (MU) reported a blowout first quarter earnings report on Wednesday, beating expectations on the top and bottom lines and offering a better-than-anticipated outlook for the second quarter, as data center builders look to grab as much of the company's memory chips as possible.
Micron builds memory, known as DRAM, for data centers. And as data center construction booms in the US, that memory is selling at a premium.
There's just one problem: DRAM is also used in devices like smartphones and laptops.
Consumer PCs and other systems use a type of DRAM called double data rate memory (DDR), while data centers use a version of DRAM called high-bandwidth memory, HBM.
DRAM suppliers are currently focusing more on building HBM than DRAM, thanks to higher margins on data center parts. And that's starving the broader market.
It's not just PC buyers who are feeling the sting, either. Everything from cars to medical equipment could be impacted by the dearth of memory chips.
Compounding that is the fact that, ahead of its earnings, Micron announced that it is exiting the consumer memory business to focus on providing memory to AI data centers.
"It's not going to be good for consumers, because it's driving prices up, and very soon,” Ryan Reith, group vice president for IDC's worldwide device tracker, told Yahoo Finance.
A massive memory crunch
While most of us tend to think of GPUs powering AI data centers, they're only part of the server clusters that run apps like OpenAI's (OPAI.PVT) ChatGPT and Google's (GOOG, GOOGL) Gemini. In addition to CPUs and storage, they also need large pools of memory.
The problem? There are only a few major memory manufacturers in the world. That includes big-name companies like Samsung, SK Hynix, and Micron (MU). And the incredible demand for data center equipment is driving up prices across the entire industry.
According to Reuters, Samsung has increased the prices of some memory by as much as 60%. Enthusiast site PCPartPicker, which tracks the prices of various memory sticks, shows the cost of some memory climbing from $100 to nearly $450.
"I think the general consensus is that in the last month … this has gotten a lot more attention, and not in a positive way," Reith said, adding that the price impact will likely end up getting passed through to consumers, especially on low-cost laptops.
That's because companies that produce entry-level and midrange systems have less room to maneuver when it comes to pricing before they completely eat through their margins.
"All of those things are essentially PCs. Any embedded device, game consoles, specialized medical equipment, those are all embedded computers, and they all have memory, and they all have storage of some kind," TECHnalysis Research founder and chief analyst Bob O'Donnell told Yahoo Finance.
But memory companies don't necessarily mind if there's a shortage of components for PCs and other systems as long as they're raking in cash on HBM, especially because the margins on HBM are higher than other types of memory.
There are some ways device makers can try to offset the increased price of memory, including using cheaper, less powerful components elsewhere in their products or putting pressure on suppliers to reduce costs, explained Bernstein analyst Stacy Rasgon.
This isn't the first time the tech industry has had to contend with memory supply problems, however. It is, after all, a notoriously cyclical market.
"What happens is, there's huge demand, and capacity gets built out, but it's never smooth," O'Donnell said.
"So … you get to the point where all demand gets sucked up, so you build these new factories, then you end up with a ton more capacity, and then the prices drop precipitously because there's too much capacity," he added.
But with so many companies building data centers across the globe, it's difficult to tell when the memory market will come back down.
By Daniel Howley · Technology Editor
