For a cable industry that already feels like it gets screwed by the Silicon Valley tech giants, the ongoing global direct random access memory (DRAM) shortage seems like yet one more indignity at their hands.
With Google, Amazon, Facebook and Apple committing to major data center build-outs in the latter half of 2017, the global supply of DRAM is short. And that’s driving up prices for telecom operators and the vendors who supply them with pay TV set-tops, broadband gateways, smartphones and many other devices that use memory chips.
“I mean, hell, we're down $100 million on EBIDTA from that revenue, and indeed into this year, we anticipate that we'll have some more [effects from high DRAM pricing],” said Arris CFO David Potts, speaking at a Raymond James investor event this week.
Set-tops control less than 1% of the DRAM market now. So bargaining power for pay TV industry suppliers like Arris and Evolution Digital isn’t great.
According to Digitimes, the global production value of the DRAM industry is estimated to surge over 30% to $96 billion in 2018, with DRAM prices set to rise 5-10% in the first half of 2018.
And according to Gartner, the price of DRAM for personal computers has doubled since the middle of 2016. A 4GB module is now $25, increasing from $12.50.
The full-year 2017 increase in the price-per-bit for DRAM was 47%, the largest increase since 1978.
With DRAM manufacturers ramping up capacity, chips prices are set to level off in 2019. But can the short-term pain the telecom industry is feeling from the shortage really be chalked up to too many people using Facebook?
For its part, Electronics Weekly conjectures a more sinister motive on behalf of the three manufacturers who control the global market for DRAM: Samsung, Hynix and Micron.
“With only three major producers, the DRAM market is vulnerable to manipulation, and the correlation between bit growth and average selling price in recent years suggest that producers are trying to walk a fine line between the interests of their shareholders and the interests of their customers,” the trade pub noted.
In January 2017, production volume growth of DRAM bits stood at 44%. Volume growth stood at only 11% as of January 2018, and it dropped as low as 6% over the course of the year. The price per bit, meanwhile, spiked from 66 cents to 97 cents over that span. Samsung, Hynix and Micron appeared to be responding to increased DRAM demand by slowing production growth.
Going forward, these three suppliers will have choices to make.
A number of smartphone suppliers, for example, are already cutting back on the amount of DRAM used in their products, going from 5GB to 4GB in some cases.
Meanwhile, upstart Chinese manufacturers are attempting to undercut the market.
“If, and it is a BIG if, the startup Chinese DRAM producers can field a competitive product over the next couple of years, DRAM users could flock to these new suppliers in an attempt to get out from under the crushing price increases now being thrust upon them—with the “payback” to the current major DRAM suppliers being severe,” Electronics Weekly surmised.