Micron locks in historically high memory prices for five years

ffauigerzigerk about 3 hours ago 41 commentsRead Article on theregister.com

HI version is available. Content is displayed in original English for accuracy.

⚡ Community Insights

Discussion Sentiment

62% Positive

Analyzed from 1299 words in the discussion.

Discussion (41 Comments)Read Original on HackerNews

alxfrnr•about 1 hour ago

"consolidated gross margin came in at 84.9 percent"

They are in saas metrics territory in terms of margins, this is insane.

try-working•about 2 hours ago

wishful thinking from MU holders. These LTAs or SCAs are just hedges on the prices going even higher. Once spot prices start dropping, all of the agreements will be broken in a millisecond. The break up fees have already been paid! There's absolutely nothing the buyer has to do, but to simply not buy at the inflated old price and instead buy from someone else at the new, lower price.

Does anyone really think that there is any agreement in the world that will keep companies paying $1000 for a product priced at $20 on the market? The larger the gap the larger the incentiv to break the agreement.

wjnc•about 2 hours ago

I think you are right but would like to keep in consideration that penalty clauses are real and can be enforced in court. We have no (or perhaps: have some) clue how far the bargaining power is leaning toward the suppliers. Maybe the signatories in the SCA are so cornered, they will sign anything and think ‘boom or bust’.

cm2187•about 2 hours ago

The article says a large part is paid upfront.

digitaltrees•about 3 hours ago

Predatory. I hope the tech community remembers this and diversifies away from companies that behave this way

cycomanic•about 1 hour ago

It's funny how everyone (especially here on HN) accepted (and expected) extremely high profit margins from software businesses, but now that hardware companies are increasing their margins to match it is suddenly outrageous. The same was reflected in engineering salaries, with software engineering salaries being often a multiple of hardware engineering ones. All this despite the fact that software businesses is arguably much easier, less risky and less capital intensive.

For decades now we have seen the expectations that software businesses (and in particular FANGs) have pushed any hardware margnins to be more and more like commodities, while they were extracting all the value.

adrian_b•about 1 hour ago

This phenomenon of "hardware companies are increasing their markets" is just a consequence of the fact that the memory market is now dominated by quasi-monopolies.

Decades ago, when memory production still existed in many countries, no such margin increases would have been possible.

Even now, this would not have been possible without the US government actively suppressing competition in the memory market, by sabotaging the Chinese memory producers.

The so-called "sanctions" against the Chinese memory producers have started some years ago precisely in the moment when Micron was threatened to lose market share to the Chinese producers (e.g. when Apple was considering to switch to them as providers). Based on the "Cui prodest?" principle, it is extremely likely that Micron was the entity who lobbied the US government to sabotage the Chinese memory producers, creating the environment where companies like OpenAI could successfully drive the memory prices to record levels.

vkou•36 minutes ago

> is just a consequence of the fact that the memory market is now dominated by quasi-monopolies.

And software isn't?

pyrale•about 1 hour ago

This exactly. The software industry has enjoyed lack of antitrust for decades now, and only complains now that others are able to ask any price against them.

naturalmovement•about 3 hours ago

Yeah they're going to diversify... to one of the other two memory companies who will likely be raising their prices too, because why should they be suckers?

small_model•about 2 hours ago

The suckers are those companies agreeing to this deal. 'Your margin is my opportunity' means prices will fall eventually once more production come on line. The invisible hand will slap their faces

Arnt•about 1 hour ago

"... involve a commitment to buy a certain quantity of product and pay for it in a pricing band that has a floor and a ceiling price. The floor price covers the historically high gross margins mentioned above, and the ceiling price means those who commit to an SCA are insulated if memory prices go even higher."

So clearly 16 large buyers consider it likely that prices will go even higher. How likely? >10% chance? Likely enough to sign an agreement.

rob74•about 1 hour ago

Well, apparently those companies believe memory prices will continue to rise, so they'd better lock in supply at the current (high) prices. We'll see if they're right...

regularfry•about 2 hours ago

"Eventually" doing a lot of work. Micron (and implicitly anyone signing this deal) are betting demand is going to outstrip capacity for several years, taking into account what new capacity can be brought online and when.

try-working•about 2 hours ago

nobody is agreeing to what the headline says. the SCAs are just a hedge against even higher prices. the agreements will be broken the second prices drop.

striking•about 2 hours ago

https://en.wikipedia.org/wiki/DRAM_price_fixing_scandal

> To date, five manufacturers have pleaded guilty to their involvement in an international price-fixing conspiracy between July 1, 1998, and June 15, 2002, including Hynix, Infineon, Micron Technology, Samsung, and Elpida.

It is history; we have not learned; we are doomed to repeat it.

baq•about 2 hours ago

waiting for you[0] to lay the $10B on the table for a new DDR fab - there's only so long I can wait for a new PC for the kids

[0] can actually be anyone

m4rtink•38 minutes ago

Well a couple Chinese RAM companies already did that a couple years ago & now they are getting the global consumer market handed on a silver platter due to the hubris and shortsightedness of the current RAM cartel.

bluecalm•about 1 hour ago

How do you want them to behave? There is more demand than production. How would they choose who to sell to at lower prices? Organize a lottery?

cm2187•about 2 hours ago

Why? Part of the problem is that chip manufacturers (from tsmc to to memory makers) are reluctant to ramp up production as the AI bubble may pop and they would find themselves with huge over capacity, a scenario they have gone through many times.

By giving them stability of cash flows, the AI companies are enabling them to make those investments and to ramp up production. That's a good thing, not a bad thing. Over time it should ease the squeeze on chips.

baal80spam•about 2 hours ago

> I hope the tech community remembers this and diversifies away

Doubt it. Has it EVER happened before?

dygd•about 2 hours ago

It feels different this time. I bet there will be a generation of PC enthusiasts that are going to remember Crucial exiting the consumer market to chase AI dollars. And similar, when they hear Micron/Samsung/Sk Hynix, they'd be wary of the price gouging. Gamer's Nexus is doing really good job exposing the DRAM cartel.

https://www.youtube.com/watch?v=jVzeHTlWIDY

cm2187•about 1 hour ago

PC enthusiasts aren't exactly sentimental when in front of a spec sheet and a price list. Plus where else are you going to go. All manufacturers are hiking up their margin if you believe their stock prices.

zarzavat•about 1 hour ago

What are they going to do about it? Start their own DRAM fab?

ramon156•37 minutes ago

Micron knows the volatility that may come and secures their own seat. Makes sense. No idea why companies said yes to this.

cryo32•26 minutes ago

Smells like a cartel. Wonder who else is in on it?

londons_explore•about 1 hour ago

There is a futures market for DRAM and NAND for exactly this purpose.

Why not just sell on the open market, and let traders and financiers and all their prediction models give you the best possible price?

alentred•about 2 hours ago

That's ... just sad.

feverzsj•36 minutes ago

That should be illegal.

rawling•about 2 hours ago

https://news.ycombinator.com/item?id=48676382

nok22kon•about 1 hour ago

This is Capitalism working as intended - resources (RAM) are allocated to those which can extract most value from them (AI labs)

kubb•about 1 hour ago

You mean those who can pay the most for them? Value is not in the picture here.

_0ffh•27 minutes ago

They can only pay so much because of the expectations about the generated value. Those might turn out wrong, as any expectation, but value is very much in the picture.

hmate9•about 1 hour ago

You can pay the most if you can get the most value out of it

adrian_b•41 minutes ago

No, you pay the most if you believe that you might get the most value out of it.

Moreover, the AI companies have not bought anything with their own money, but with the money of naive investors who believe that their money will be used by the AI companies to buy things out of which they will be able to get the most value.

So for now, this is strictly only speculation, which has driven the prices sky high. It remains to be seen who will really get any value (besides Micron, NVIDIA and the like, who have got good money for their products).

adrian_b•33 minutes ago

Yes, Capitalism is working by a mechanism where some people have access to huge fictitious resources, a.k.a. money, for whom they have never given anything equivalent in exchange, and they use those fictitious resources to outbid the other people and take possession of the real physical resources, which they can use then to make more money, in a positive feedback loop.

Money was supposed to be a means by which it is recorded what someone has given to others, so that they may receive equivalent resources in return. But now money has retained this function only for employees and other low-income categories.

LoganDark•about 1 hour ago

Huh. It looks like Micron managed to lock in these contracts because companies are scared that prices will continue to rise. But in doing that, Micron has managed to lock themselves in a comfortably high floor price, potentially for longer than the boom is going to last. Big win for Micron.

potatototoo99•about 1 hour ago

The article says they locked in floor prices, so they can even continue to climb is what I understood. So maybe they are buying capacity instead.

LoganDark•about 1 hour ago

Well, I didn't say the price is fixed. Just that even if the boom goes away, Micron will have their price floor. The benefit to a customer signing a contract like that, of course, is the price ceiling. But indeed, prices can continue to grow within that range.