The DRAM (Dynamic Random-Access Memory) market is on the verge of sweeping changes in the next few years. Look forward to one heck of a transformation! Samsung, a major player in the memory chip market, is preparing to begin production at a new plant in Pyeongtaek, South Korea. The company has set an ambitious target for beginning operations by 2028. This decision arrives during a historic boom and bust cycle in the DRAM sector. The industry still finds itself in the throes of once-in-a-century demand supercharged by development of AI infrastructure. With close to 2,000 new data centers planned or under development globally, the demand for memory chip supplies continues to be tightly contended.
The current demand for DRAM is largely fueled by its application in GPUs and other accelerators essential for AI data centers. This unprecedented demand has led not only established firms but new entrants across the industry to seize opportunities to add production capacity. The road to fulfilling this demand is not without its hurdles. These challenges are compounded by previous economic recessions and the need for large-scale capital investment in new manufacturing projects.
Supply Chain Challenges and Production Cuts
The COVID-19 pandemic was the immediate catalyst for a chip supply crisis that is still impacting the DRAM market. In 2023, all of the largest memory and storage manufacturers—including Samsung—cut production by 50 percent. They improvised this move out of necessity because of decreased demand and economic uncertainty. To bring predictability back to prices, we made this unprecedented step. It allows us to keep inventory off the water during the industry’s recession.
Mina Kim, an economist with Mkecon Insights, noted the dual strategies available to address supply issues: “There are two ways to address supply issues with DRAM: with innovation or with building more fabs.” This means that in addition to companies that lead purely with technology innovation, there will be companies that lead by simply building larger manufacturing capacity.
The huge costs tied to constructing new fabs ($15 billion plus is not atypical) only adds to the challenge. With construction and operational readiness taking 18 months or more, it is almost impossible to respond quickly to market demands.
The Role of Innovation in Addressing Demand
With businesses facing major supply chain challenges and unpredictable consumer demand, innovation has never been more essential to stay competitive and help solve these issues. Manufacturing excellence In 2024, Samsung clearly flexed its advanced manufacturing prowess. With this achievement, they became the first ever to achieve a 16 high stack using hybrid bonding technology. The firm further indicated that a 20-die configuration is not out of reach. To meet increasing demand, these innovations are needed now to increase capacity and yield rates.
Shawn DuBravac, chief economist for the Global Electronics Association, highlighted the importance of strategic measures: “Relief will come from a combination of incremental capacity expansions by existing DRAM leaders, yield improvements in [advanced packaging], and a broader diversification of supply chains.” This new approach focuses both on technological innovation, including diversification, to increase market resiliency and make it less volatile.
Further, the growing utility of High-Bandwidth Memory (HBM) in AI data centers highlights the critical need for innovation across the industry. The HBM4 standard supports 16 stacked DRAM dies, enabling even higher performance per Watt efficiency. As other organizations keep increasing their AI capabilities, manufacturers already need to be quick to adapt their go-to-market production strategies.
Future Outlook and Economic Considerations
Experts say the right steps are being taken to boost supply. They aren’t expecting meaningful relief until at least 2028! As Intel CEO Lip-Bu Tan put it poignantly, “There’s no relief until 2028. This projection emphasizes the long term quality of existing shortages, as well as the actions required to make recovery possible.
Even with attempts to keep inflation at bay, history has shown us that when cuts do happen, they often take time to go into effect. Mina Kim discusses why economists have noticed this oddity with an intriguing explanation. Specifically, prices have a strong tendency to increase abruptly, but then decrease very gradually and only timidly. DRAM today will not be an exception to this broader rule, particularly when combined with the ever growing, almost insatiable appetite for compute. This serves as a reminder that even when we successfully produce more capacity, consumers won’t necessarily experience the benefits right away in terms of price.
Rapid expansion of data centers is making datacenter DRAM a key focal point for the future of the DRAM market. There are almost 2000 new facilities planned or currently being built around the world. This growth will continue to drive demand for memory chips as institutions race to improve their technological backbone.