The second factor, the current memory chip shortage, is upending the technology landscape. It’s particularly crushing data centers and pushing up the demand for DRAM. Now, as companies like Lumos invest heavily in supportive infrastructure, many experts foresee a resolution to the current shortage in the years to come. At least $3.3 billion is earmarked for servers, data storage, and network equipment. Because of this, nearly 2,000 new data centers are in the planning stages or under construction around the globe. With the continued advancement of data center technology, this expansion would result in at least a 20 percent increase in the global supply of data centers.
Today, there are an estimated 9,000 data centers around the globe. The rapid growth in this sector reflects the soaring demand for data processing capabilities, driven largely by advancements in artificial intelligence (AI) and cloud computing. Continuing expansion The rapid increase in demand for DRAM has led to a significant increase in prices. In reaction, manufacturers like Samsung have reduced their own production. In the meantime, Nvidia is enjoying hyperbolic revenue growth from its data center division. This increase dramatically raises the stakes to fix the chip supply chain crisis.
Investment in Data Centers
The tech industry is enjoying a massive boom in investment at the moment. For their part, companies are scrambling to construct and commission new data centers and retrofitting their current ones. The $3.3 billion is specifically for servers, data storage and network equipment – a clear signal that strong infrastructure is paramount.
Almost 2,000 new data centers are already planned or being built. This investment demonstrates a vigorous commitment to satisfying the accelerating demand for data processing and storage capacity. The worldwide availability of data centers might increase by as much as 20 percent, according to analysts’ forecasts. This jump will only occur if all proposed facilities are built out.
“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,” – Shawn DuBravac
Challenges in DRAM Production
While things look hopeful from the data center boom, there are still production issues for DRAM chips. Samsung’s grand ambitions don’t stop there—the company is expected to begin production within a year at a new facility in Pyeongtaek, South Korea. The opening is scheduled for 2028! This new plant will help strengthen production capacity, especially as demand increases for AI-related applications.
As for today’s high-bandwidth memory (HBM) chips, they consist of 12 stacked DRAM dies. The new standard, which supports up to 16 stacked dies, is a monumental technological breakthrough. Facilitating this progression completely is hybrid bonding technology. By 2024, Samsung hopes to be manufacturing a 16-high stack through this new, cutting-edge process.
Surprisingly, even with these advancements, the production process is still time-intensive and expensive. Such new fabrication plants, or fabs, typically require investments of $15 billion or more. They can take over 18 months to get fully operational. This huge lead time makes it hard to mass produce products fast enough to make up for increased demand in short time frames.
“There are two ways to address supply issues with DRAM: with innovation or with building more fabs,” – Mina Kim
They need to prioritize balancing innovation and capacity expansion to best address the acute and persistent supply shortage.
Economic Implications of Supply and Demand
The geopolitical and economic dynamism of the memory chip industry is intense. As the demand for DRAM skyrockets—especially with AI-driven apps—the prices have skyrocketed as well. In what was described as an unprecedented move to calm a rapidly changing market, Samsung announced a shocking 50 percent reduction in production in the year 2023. This action was meant to stabilize market prices and ensure that prices did not dip below the costs of manufacturing.
Economists have long noticed that price changes tend to go down slower than up. This trend doesn’t appear to be limited to NAND – that seems to be the case for DRAM prices.
“In general, economists find that prices come down much more slowly and reluctantly than they go up. DRAM today is unlikely to be an exception to this general observation, especially given the insatiable demand for compute,” – Mina Kim
High volatility of pricing in the memory chip industry has created an environment of uncertainty and unpredictability for manufacturers and consumers. In 2022, data center growth stalled to a crawl. This recent downturn resulted in a significant decrease in memory and storage pricing. We underscore here the tricky balancing act between supply and demand that companies will need to strike in 2023 and beyond.