AI Fuels Memory Chip Shortage, Threatening Phones and Cars.

The semiconductor industry is bracing for a potential memory chip shortage that could ripple through the consumer electronics and automotive sectors in the coming year. Chipmakers and analysts cite the industry’s pivot towards fulfilling the burgeoning demand driven by the artificial intelligence (AI) boom as the primary cause. This surge in AI-related demand is prioritizing advanced memory solutions, potentially leaving other sectors underserved.

Echoing these concerns, the CEO of Semiconductor Manufacturing International Corp (SMIC), China’s leading contract chip manufacturer, highlighted the apprehension among clients. During a recent earnings call, it was revealed that the anticipation of a memory chip scarcity is compelling clients to defer orders for other essential chips needed for their respective products.

“Everyone is hesitant to place too many orders or ship too much in the first quarter of next year because they don’t know how many mobile phones, cars, or other products [the memory chip industry] can supply,” stated Zhao Haijun, SMIC’s co-CEO.

Industry analysts attribute these supply chain anxieties to the strategic shift among chip manufacturers, who are increasingly focusing on the production of advanced memory chips tailored for AI computing. This strategic allocation of resources may be diverting focus from the production volumes required to meet the demands of consumer-oriented products.

“The AI build-out is absolutely eating up a lot of the available chip supply, and 2026 looks to be far bigger than this year in terms of overall demand,” noted Dan Nystedt, vice president of research at TriOrient. The escalating demand for AI servers, powered by processors from companies like Nvidia, is placing unprecedented strain on memory chip supply chains.

Nvidia’s dominance in the AI server market is intrinsically linked to the demand for High-Bandwidth Memory (HBM). This specialized memory type, crucial for AI processor performance, has emerged as a highly profitable segment for memory manufacturers such as SK Hynix and Micron.

Nystedt explained the financial incentive driving this strategic shift, “Memory suppliers have been chasing as much of this AI demand as possible thanks to typically high margins,” suggesting that AI-driven demand allows premium pricing that exceeds the profitability of standard memory products.”It could be very bad for PCs, laptops, consumer electronics and automotive, which depend on cheap memory chips,” he added.

Further compounding the situation, the memory industry weathered significant downturns in 2023 and early 2024, triggering under-investment in production capacity. While new capacity is being developed, bringing it online will require time, exacerbating near-term supply constraints.

In response to tightening supply, memory companies have reportedly been increasing chip prices. This trend reflects the fundamental economics of supply and demand in a market where demand is outstripping available production capacity.

Samsung Electronics, a major player in the memory chip market, has reportedly increased prices on select memory chips by as much as 60% compared to September. Samsung didn’t immediately respond to a request for comment.

“With memory prices rising and availability shrinking, concerns about production bottlenecks are gaining traction,” M.S. Hwang, research director at Counterpoint Research, told CNBC. The current dynamics could lead to a cascading effect throughout the electronics supply chain.

“Supply tightness is already hitting low-end smartphones and set-top boxes, but we think the risk could broaden,” he added, indicating a potential expansion of the shortage’s impact across various device categories.

While the impact may be felt globally, Hwang suggests that China’s reliance on low-cost devices could make it particularly vulnerable to the supply constraints. The combination of rising prices and limited supplies suggests a challenging environment for device manufacturers and consumers alike.

Consumers may ultimately bear the brunt of memory shortages through increased prices for electronics. A recent report from TrendForce predicts a “robust upward pricing cycle” within the memory industry that will pass through to consumers.

TrendForce’s analysis points to increased price and demand pressures throughout the electronics market.