In response to complaints from mobile phone manufacturers, regulators have turned their attention to memory chip prices, which have been rising for six consecutive quarters and are expected to continue increasing in the first quarter of next year. According to sources who spoke with the 21st Century Business Herald on December 21, the National Development and Reform Commission (NDRC) has already begun discussions with Samsung regarding this issue. However, it remains unclear whether an anti-monopoly investigation will be launched.
Samsung is the world’s leading manufacturer of memory chips, holding approximately 48% of the DRAM market and 35.4% of the NAND Flash market. These two types of memory chips are essential components in smartphones, computers, and servers. In 2017, the global storage chip market was valued at $950 billion, with DRAM accounting for around $50.35 billion and NAND Flash reaching about $40 billion, according to China Flash Memory Market (CFM).
The price surge began in Q3 2016 due to supply shortages, leading to higher costs for smartphones, solid-state drives, and memory modules. Popular smartphones saw price increases of 100–200 yuan, while flagship models were priced up to 300 yuan more than previous versions. Some memory modules even experienced a 300% price jump within a year.
Initially, many analysts predicted that the price increase would end by the second half of 2017, based on production cycles. However, the price hikes have continued, with expected reductions now pushed back to the second half of 2018.
For mobile phone manufacturers, the cost of storage has become one of the largest expenses. One manufacturer stated that storage costs now account for 25% to 35% of a smartphone’s total cost. Prices for flash memory of different capacities have risen by over 30% to 40% this year. For example, the price of 32GB and 64GB flash memory increased by $5 and $10 respectively, while 128GB units jumped by $20, creating significant pressure on manufacturers.
Only a few companies dominate the global storage chip market, including Samsung, Micron, Toshiba, Hynix, and Western Digital. Together, Samsung, Micron, and Hynix control over 90% of the DRAM market.
These high profits have significantly boosted the earnings of these chip giants. Samsung’s Q3 2017 financial report showed revenue of $54.5 billion, a 29.7% year-on-year increase, with net profit reaching $12.76 billion, up 179.47%. Over the first three quarters of 2017, Samsung generated $152.456 billion in revenue, a 16.8% increase compared to 2016. Net profit for the same period reached $33.81 billion, up 92.3%.
Despite setbacks from the Galaxy Note 7 battery issues, semiconductor sales became Samsung’s main profit driver. In Q2 2017, Samsung Semiconductor's revenue surpassed Intel for the first time, reaching $15.73 billion. Samsung’s stock price also rose sharply, from 1.33 million won in June 2016 to 2.554 million won, marking a 90% increase. In November 2017, its stock hit a 10-year high of 2.86 million won.
According to industry reports, Samsung and Hynix have announced plans to raise DRAM prices by 3% to 5% in the first quarter of next year, signaling that prices may continue to climb.
As the world’s largest producer and consumer of electronic products, China has become the biggest market affected by this price surge. However, PC and smartphone manufacturers have little leverage against the dominant chip suppliers. Even Foxconn, known for its supply chain expertise, struggles to negotiate better terms. A Foxconn source noted, “The market is clearly saturated. At the start of the year, we couldn’t buy products even with money. Now, we can buy them, but at much higher prices.â€
Industry insiders suspect that price collusion among major players might be occurring. This practice was seen during the early 2000s, when companies like Samsung, Hynix, and Micron were fined over $730 million by the U.S. Department of Justice for monopolistic behavior. The case marked one of the largest antitrust penalties in U.S. history.
In 2000, as the dot-com bubble burst, the DRAM market shrank from $28.8 billion to $11 billion in 2001. Despite weak demand, DRAM prices surged over 300% in just six months, putting pressure on major tech companies like Dell, HP, Apple, and IBM. The U.S. government investigated and eventually penalized several companies, including Samsung, which was fined $300 million.
Although it’s not yet clear if current price increases will trigger an anti-monopoly probe, the possibility of a price cartel still looms. Such behavior not only allows companies to maximize profits but also helps eliminate competitors. With ongoing price hikes, Samsung and other chip giants are accumulating more capital, which could make it harder for emerging Chinese firms to compete in the future.
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