Since 2016, the soaring prices of storage components have been significantly eroding the profits of machine manufacturers across the industry. Whether it's DRAM or NAND flash memory, prices have remained at record highs for over a year, with almost every quarter seeing a surge. For example, Kingston’s 8GB DDR4 2400 memory module was priced at just 339 yuan in November 2016. A year later, its price had skyrocketed to 969 yuan. Analysts predicted that such rapid price increases would continue through the first quarter of 2018.
This dramatic rise in memory prices benefited major players like Samsung Electronics, which became the company with the highest operating profit globally in 2017. In the fourth quarter alone, its operating profit was expected to exceed 60 billion RMB, marking a 179% year-on-year increase. Similarly, South Korea’s Hynix reported a basic profit of approximately 21.81 billion RMB in the third quarter, a 415% annual growth. Meanwhile, U.S.-based Micron Technology saw its fourth-quarter revenue reach $6.14 billion, a 91% increase compared to the same period last year—surpassing Wall Street’s forecast of $5.99 billion. While most machine manufacturers struggled under rising costs, memory producers experienced an unusual boom.
The root cause of the price surge lies in supply and demand imbalances. Some blame monopolistic practices or dealer speculation, but the real issue is that production cannot keep up with growing demand. A decade ago, memory chips were primarily used in PCs and servers, where manufacturers could maintain a balance by forecasting market needs, keeping prices stable. Even with technological advancements, prices tended to decline. As a result, memory chips often played a minor role in PC and server purchases.
However, recent years have seen a shift due to the maturation of technologies like mobile devices, cloud computing, AI, IoT, and big data. These innovations have driven new product demands, prompting users to seek faster and higher-performance memory solutions such as SSDs and flash memory. China alone produced 1.5 billion smartphones in 2016, with 64GB and 128GB memory becoming standard. The expansion of large-scale cloud platforms and next-generation data centers has further fueled demand for high-performance memory products. In the PC market, more consumers are replacing HDDs with SSDs to enhance performance.
According to IC Insights, the global DRAM market was forecasted to grow by 75% in 2017, reaching $72 billion, while the NAND Flash market would increase by 44% to $49.8 billion. By 2020, the total market was expected to surpass $100 billion.
Building a memory plant typically takes 1–2 years, so sudden shifts in demand can lead to shortages and price surges. Since 2016, manufacturers have shifted production toward 3D NAND, reducing output of traditional DRAM and 2D NAND. Low yields of 3D NAND have caused widespread shortages across all memory product lines.
The rising cost of memory has severely impacted China’s electronics industry. As the world’s largest integrated circuit market, China’s semiconductor memory market reached 284.3 billion yuan in 2016, accounting for 54.1% of the global share. However, the country remains heavily reliant on imports. South Korea’s Samsung, Hynix, and U.S. Micron dominate 93% of the DRAM market, while Chinese companies hold zero market share. In the flash memory sector, Samsung, Hynix, Toshiba, SanDisk, Micron, and Intel control the market, leaving no room for domestic players except for Zhaoyi Innovation, which holds 7% of the NorFlash market.
From 2013 to 2016, China’s semiconductor memory imports increased by 47.5%, rising from $46.17 billion to $68.13 billion, with expectations of exceeding $70 billion in 2017. This dependency on foreign suppliers has made the industry vulnerable to price fluctuations.
For companies like Xiaomi and Huawei, rising memory costs have led to reduced profits. To offset these expenses, they have had to raise phone prices, passing the burden onto consumers. The PC market, already sluggish, has also suffered. Many consumers have postponed purchasing high-memory devices, while some computer shops report a 20% drop in installed capacity and a 50% decrease in orders from internet cafes.
Ye Tianchun, director of the Institute of Microelectronics at the Chinese Academy of Sciences, emphasized the importance of self-sufficient memory chip development: “If China does not solve the problem of domestically producing memory chips within the next 30 years, the information age will lose a crucial foundation.â€
To address this, the Chinese government has actively supported the development of the domestic memory industry. It has elevated the semiconductor industry to a national strategic level, with President Xi Jinping emphasizing breakthroughs in key technologies. Local governments have established large investment funds, with over 300 billion yuan allocated for integrated circuit projects by mid-2017. Several new wafer fabs have been built in mainland China, and the National Development and Reform Commission and the Ministry of Industry and Information Technology have approved significant investments in projects like Jinhua DRAM and Xiamen Sanan.
Major companies are also investing heavily in domestic memory production. Ziguang Guoxin plans to build flash memory facilities with 60 billion yuan in capital. Wuhan Xinxin is investing $24 billion to establish an IC memory base, while Fujian Jinhua is investing 37 billion yuan in its memory IC production line. Additionally, a 160 billion yuan memory base project was launched in Wuhan, aiming to produce 300,000 wafers per month by 2020.
Looking ahead, companies like Yangtze River Storage and Hefei Changxin are making progress. Yangtze River Storage plans to mass-produce 32-layer, 64-G 3D NAND chips in 2018, targeting 300,000 units per month by 2020. Hefei Changxin is building a 12-inch DRAM fab with a target of 125,000 units per month. Fujian Jinhua’s 12-inch DRAM line is expected to reach 60,000 wafers per month by 2018.
Despite these efforts, Chinese companies still face a long-term battle against global giants. According to South Korean experts, China’s memory technology lags behind South Korea by 10–15 years. Major players like Samsung and Hynix continue to expand their capacities, with Samsung investing $2.7 billion in South Korea and $7 billion in its Xi’an plant. Hynix is also expanding with an $8.6 billion investment in Wuxi.
China’s storage industry must focus on innovation, avoid direct competition, and prepare for a prolonged struggle. With time and investment, it is hoped that Chinese companies will emerge as strong competitors, much like BOE, and create a thriving domestic memory industry.
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