A class action lawsuit has been filed against memory giants Samsung, SK Hynix, and Micron alleging the nefarious, cartel like action of…making the products with the highest profit margins.
The world’s biggest memory chip makers are once again facing accusations of manipulating prices.
A class-action lawsuit filed on Thursday, June 25, in a California federal court alleges that Samsung Electronics (SSNLF), SK Hynix (SKHY), and Micron Technology (MU) coordinated to restrict DRAM supply and push prices sharply higher during the AI boom.
The complaint, filed in the US District Court for the Northern District of California under case number 3:26-cv-06345, claims the companies reduced production of traditional DDR3 and DDR4 memory while shifting capacity toward high-margin AI memory products such as HBM chips used in data centers.
Not to mention DDR5.
However, the companies have not been found liable for now, and no trial date is set.
According to the lawsuit, DRAM prices have surged nearly 500%-700% over the past four years, reported Time of India. Plaintiffs argued that in a competitive market, rising prices should attract more supply, but production cuts continued instead.
Snip.
According to Jefferies, memory prices could rise another 40%-50% next quarter and 30%-40% more in the following quarter, reported analysts like Bull Theory on X, with normalization unlikely before 2028. The rising memory costs are already filtering into consumer electronics prices worldwide.
Does this situation suck if you’re trying to buy or build a new PC with lots of RAM? Absolutely. But there’s no nefarious market coordination at work among those big three, just the confluence of a variety of market trends. So let’s break it down:
Manufacturers switching production from a less profitable product to a more profitable product isn’t some nefarious conspiracy, it’s how the market works. If they’re getting premium pricing for HBM memory that sells out instantly for the AI bubble, that’s what they’re going to produce. A whole lot of tech companies depended on the spot market for RAM because it gave them more flexibility and costs savings, but now it’s biting them in the ass. Their lack of foresight does not indicate a conspiracy or market failure.
Why are there only three big RAM manufacturers? Because a whole lot of other companies dropped out of the market because the game became too expensive to play. RAM makes money hand-over-fist during boom times (like now), but barely breaks even during busts. A whole lot of different companies used to produce memory, Intel and Texas Instruments among them. Remember when Japan Inc. was going to take over the world and the Japanese semiconductor giants (NEC, Toshibu, Fujitsu, Hitachi, etc.) were accused (with some justification) of dumping RAM below cost to capture market share with the backing of state agency MITI? None of those Japanese giants are in RAM any more because, in the wake of the Japanese asset bubble busting in 1991, building new state-of-the-art fabs that doubled in price every four years became a game too expensive for them to play.
Rising prices should attract more supply, but it takes about three years and costs about $25 billion to build a state-of-the-art fab. Because standard memory technology still has a capacitance limit, you don’t necessarily need an under-10nm fab, so maybe you can spend a bit less, but you’re still spending over $10 billion on a fab, and you probably still need an ASML EUV stepper, though not the very latest one.
And indeed, Samsung, SK Hynix, and Micron all have two new fabs each in the pipeline scheduled to come online this year through 2028. The Micron and SK Hynix fabs will both be dedicated to producing memory. As for Samsung (which has a lot of fingers in a lot of semiconductor pies), I would guess their newest South Korean fab will be dedicated to memory, while their 4-5nm Taylor, Texas fab will not. Building new fabs are not the actions of monopolists who want to artificially constrain supply.
Indeed, the “they’re artificially constraining supply” nonsense suggests that they’re producing fewer memory chip than they could otherwise, and that’s just not how the industry works. Fab production lines run 24/7/365 (indeed, they pay technicians triple to work Christmas), because every hour a modern fab is down they’re losing millions in lost profit.
Building new fabs is still a risky bet, because the industry is extremely cyclical. No matter how furious the boom now, the next bust is always around the corner. Back when I was working at Applied Materials, the cycle was described as trains linked together with slinkys. First software takes off, then hardware gets yanked along, then the chip manufacturers get yanked, and then, finally, semiconductor equipment manufacturers get yanked into motion, and shortly after that happens, the bust hits the front of the train, and the trailing cars all crash into each other. (The standing joke at Applied Materials was that you could tell the bust was on the very moment the company broke ground on a new manufacturing facility.) Build a new $25 billion fab at the wrong part of the cycle and it could take a company much longer to amortize it than they expected. That’s why so many companies switched to the foundry model.
Speaking of foundries, could they be a solution to the memory crunch? Potentially, but there you’re running into the same AI boom-induced wafer start constraints that plague the memory sector. TSMC is fabbing AI chips for Nvidia (and most of its competitors) as fast as it possibly can. Maybe they can profitably book runs on slightly older (but not “mature”) TSMC fabs, but they’re still competing with every other fabless company supporting the AI build-out for the same wafer starts. A whole lot of different silicon goes into a data center.
Could an existing semiconductor manufacturer jump into the existing space? Yes, and in fact Intel has announced plans to do just that, though evidently with their own proprietary, next gen “Z-Angle Memory (ZAM),” which isn’t going to do squat to relieve this year’s DDR3/4/5 shortage. Still, they have enough slightly trailing edge fabs to do it, though Intel has had trouble executing at speed in the past.
Could another company jump into the semiconductor fab race as an integrated device manufacturer for memory? Risky but possible. Someone like Apple could decide that memory shortages are an existential threat to its business model and spend the tens of billions to get into the game. (And indeed, Apple is already spending some $500 billion to reshore its supply chain back into the US, so that would fit right in. Apple could potential contract with TSMC (or even Micron) to build and run a memory fab. (Samsung is a trickier proposition, since the two are fierce competitors as the biggest smartphone manufacturers in the world, but there’s still a lot of “cooperatition” between the two, so it’s not beyond the realm of possibility.) But the three year lead time still applies.
Entire tech boom and bust cycles have come and gone in an era in which RAM is cheap and plentiful, a situation people have come to think of as “normal.” Just as with higher credit rates, a whole lot of business models that were viable in an era of cheap memory are suddenly going to stop being so in an era of scarcity. Some companies will be able to raise prices and remain profitable, and others won’t. Not everyone will be hit, as a lot of embedded devices use older types of memory that hasn’t gone through the roof. There are all sorts of older fabs churning out older types of memory that aren’t relevant to this discussion.
The idea that Samsung and SK Hynix are colluding is particularly laughable, as the two Korean chaebol backing SK Hynix (Hyundai and LG (AKA Lucky Goldstar)) both hate rival Samsung with a passion.
The current shortage, as painful as it is to so many, isn’t the result of a nefarious cartel, it’s just the free market working like it always does at the interface between supply and demand. It’s just that cutting-edge semiconductor supply has a whole lot more lead-time constraints that most other economic sectors.
The AI Bubble seems considerably worse than the Dotcom Bubble (which was only partially about the Internet; updating hardware and software to avoid the Y2K bug also drove a lot of spending in the same timeframe), and its inevitable bursting (or just deflating) is going to relieve pressure on everyone else that needs 10nm or smaller wafer starts.
But there’s no telling exactly when that will be.