- Unmet demand for advanced microchips, thanks to AI data center buildouts, is shifting the manufacturing dynamic.
- Chipmakers are focusing on profitable AI components, leading to a shortage in lower tier chips and memory storage.
- The shortage is already showing up in higher prices for products like smartphones, PCs and televisions.
Overwhelming demand for advanced microchips and other high-tech components needed to build out artificial intelligence data centers is spurring manufacturing changes and set to drive up prices on a whole host of more mundane consumer electronics.
And industry experts say these new market imbalances are likely to persist for the foreseeable future.
The debut of the AI-powered chatbot ChatGPT in 2022 marked the beginning of a demand explosion for massive data centers as ChatGPT creator OpenAI and a slew of other companies, including the biggest tech businesses in the world, raced to develop and advance their own AI platforms.
The primary component of these data centers, ultra-advanced graphic processing units that do the work of consuming and parsing vast amounts of data, require ultra-advanced microprocessors along with memory storage components. Global demand for the units has far outstripped the ability of suppliers to keep pace as tech companies have spent and continue to spend hundreds of billions to outpace their AI competitors.
Now, makers of advanced chips and components for the AI data center processing engines are shifting focus to this highly profitable sector of the market, where some customers have stipulated in open orders that they will purchase inventory “regardless of price.” The collateral outcomes of that shift are leading to supply shortages for the less complex and less profitable chips that drive a wide array of consumer products, such as smartphones, computers and televisions.
And those simple economic shifts are starting to show up in sharp price increases for those consumer devices.
Which electronic devices are getting more expensive?
A Reuters report that examined the spiraling supply crisis shows industry efforts to meet voracious appetite for advanced chips — driven by advanced chipmaker Nvidia and tech giants like Google, Microsoft and Chinese e-commerce giant Alibaba — created a dual bind: Chipmakers still can’t produce enough high-end semiconductors for the AI race, yet their tilt away from traditional memory products is choking supply to smartphones, PCs and consumer electronics.
Francis Wong, India’s chief marketing officer for Chinese smartphone maker Realme, told Reuters the steep increases in memory costs were “unprecedented since the advent of smartphones” and could force the company to lift handset prices by 20% to 30% by June.
“Some manufacturers might save costs on imaging cameras, some on processors, and some on batteries,” Wong said. “But the cost of storage is something all manufacturers must completely absorb; there’s no way to transfer it.”
Memory chips, in particular DRAM which has seen prices shoot up, is of particular concern because it’s used in so many devices from smartphones to laptops, per a report from CNBC.
Storage and memory chips account for between 10% to 25% of the materials price for a typical PC or smartphone, according to Peter Hanbury, partner in the technology practice at Bain & Company. A price hike of 20% to 30% on those components would push the prices consumers pay up 5% to 10%.
“In terms of timing, the impact will likely start shortly as component costs are already increasing and likely accelerate into next year,” Hanbury told CNBC.
Jeff Clark, chief operating officer at Dell, this month said the price rises of components is “unprecedented.”
“We have not seen costs move at the rate that we’ve seen,” Clark said on an earnings call, per CNBC, adding that the pressure is seen across various types of memory chips and storage hard drives.