Global electronics makers are scrambling to stock up on memory chips to keep production lines running as Apple Inc’s (AAPL.O) new iPhone 8 launch later this year threatens to worsen a global squeeze on supply, Reuters reports.
While heavyweights such as Apple and Samsung Electronics Co Ltd (005930.KS) – which is also the world’s top memory chip maker – will not be seriously hit, industry sources and analysts say some electronics makers are paying a premium to lock into longer-term contracts.
Others are placing orders earlier than before to ensure their perilously low inventories do no dry up completely.
“After the supply shortages emerged we brought forward our procurement decisions … to ensure a stable supply,” smartphone and personal computer maker LG Electronics Inc (066570.KS) said in a statement, adding it had pushed up quarterly purchase decisions by about a month.
Chip manufacturing technologies are growing increasingly complex, raising investment costs yet providing less output growth as some suppliers struggle to improve yields. This has caused some chip prices to double or triple from a year earlier.
Some analysts say device makers could be forced to cut down on the amount of DRAM chips, which help devices perform multiple tasks at once, or NAND chips that are used for long-term data storage, on new products if the cannot get enough chips.
A chip supplier source told Reuters a handful of clients have moved to 6-month supply agreements, accepting higher prices than the customary quarterly or monthly deals, to make sure they get enough memory chips for their products.
Signs of stress have already emerged: Huawei Technologies Ltd [HWT.UL] was criticized by consumers after it was discovered the Chinese firm used a mix of less advanced and powerful chips in its flagship P10 model that led to significant variations in performance.
Huawei did not respond to requests for comment on its memory procurement plans.
About 18 percent of the global annual supply of NAND chips is bought by Apple, analysts say. In recent years, electronics makers have typically built up inventory during the first half to avoid being squeezed by Apple, which generally unveils its latest iPhone model in September.
Chipmakers have been allocating more capital in recent years to boost production of NAND chips, where the shortage has been acute due to strong demand for high-end data storage products. Samsung Electronics will start NAND production at a $14 billion South Korea plant in the second half, while SK Hynix (000660.KS) will start making its new high-end NAND products in coming months.
