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Chinese DRAM Plant Fire Continues To Drive Up Memory Prices

Unknown Lamer posted about 10 months ago | from the things-that-go-boom dept.

Businesses 112

Nerval's Lobster writes "Damage from an explosion and fire in SK Hynix's Wuxi, China DRAM fabrication plant will drive up global memory prices for PCs, servers, and other devices, according to new reports. Most of the damage from the Sept. 4 fire was to the air-purification systems and roof of the plant, according to announcements from parent company SK Hynix, which predicted the fab would be back to full production in less than a month. The Wuxi plant makes approximately 10 percent of the world's supply of DRAM chips; its primary customers include Apple, Samsung, Lenovo, Dell and Sony. SK Hynix is the world's second-largest manufacturer of memory chips, with a market share of 30 percent, lagging behind Samsung Electronics with 32.7 percent. In an update published Friday, market-research firm DRAMeXchange reported that damage from the fire, smoke and power outages left at least half the plant inoperable or at reduced capacity. The plant is designed to isolate damage in case of disaster so that at least one of its two parallel production facilities can remain online. The facility itself restarted production Sept. 7, according to a statement from the company."

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How oddly reminiscent (4, Insightful)

ddegirmenci (1644853) | about 10 months ago | (#44871041)

of the flood that hit a couple years ago, halting 70(?) percent of HDD production...

Re:How oddly reminiscent (0, Insightful)

Anonymous Coward | about 10 months ago | (#44871189)

Oddly reminiscent in the sense that has absolutely nothing in common with it. It's neither HDDs, nor in Thailand nor a natural disaster.

So, it's kinda like going to Madrid to the Reina Sofia museum, looking at Picasso's Guernica and declaring "Hmm, definitely needs more horsepower". In other words, makes no sense at all.

Re:How oddly reminiscent (3, Insightful)

ddegirmenci (1644853) | about 10 months ago | (#44871667)

I was actually referring to how stories of artificial price inflation began showing up some months after the said incident.

But I'll go by your logic now. It's electronics (and PC components), it's in the SE Asia region, it's an unforeseen incident causing a price hike. I see a 100% correlation here.

Re:How oddly reminiscent (-1)

Anonymous Coward | about 10 months ago | (#44871775)

You're an idiot trying to see correlation where there is none. Let's see: different product, different country, different cause, vastly different production output affected (5% vs 70%).

So, exactly, what is reminiscent? I'll give you a hint: it starts with the letter 'n', ends in a 'g' and has 'othin' between.

"Oh, but they're both computer components", I hear you say. Sure, it's that kind of asinine thinking that enables software patents for obvious bullshit because... "on a computer", or more recently "on a smartphone". Kindly go die in a fire, thank you. Best wishes for your afterlife.

Re:How oddly reminiscent (1)

jones_supa (887896) | about 10 months ago | (#44872203)

Come on, Linus, you can create an account.

Re:How oddly reminiscent (0)

Anonymous Coward | about 10 months ago | (#44873763)

It's disturbing to think that so much of the world is running an operating system developed by that weirdo.

Re:How oddly reminiscent (1)

morgauxo (974071) | about 10 months ago | (#44874677)

Come on, Ballmer, you can create an account

Re:How oddly reminiscent (0)

Anonymous Coward | about 10 months ago | (#44872127)

I'd also hit on it highlighting the limited points of failure in our high tech world. When one factory or a disaster in one locality in the world can have a significant impact on availability and prices of the entire world's tech market, it may be time to realize we need to distribute things a bit more.

Calls to mind the classic joke (3, Funny)

justthinkit (954982) | about 10 months ago | (#44872745)

A doctor vacationing on the Riviera met an old lawyer friend and asked him what he was doing there. The lawyer replied, "Remember that lousy real estate I bought? Well, it caught fire, so here I am with the fire insurance proceeds. What are you doing here?" The doctor replied, "Remember that lousy real estate I had in Mississippi? Well, the river overflowed, and here I am with the flood insurance proceeds." The lawyer looked puzzled. "Gee," he asked, "How do you start a flood?"

Re:How oddly reminiscent (1)

fast turtle (1118037) | about 10 months ago | (#44874009)

except it's not an unforseen incident. It may very well be planned to push prices up.

Re:How oddly reminiscent (0)

Anonymous Coward | about 10 months ago | (#44871923)

So, it's kinda like going to Madrid to the Reina Sofia museum, looking at Picasso's Guernica and declaring "Hmm, definitely needs more horsepower".

It bloody does too. It's been my life's dream to add a high-powered engine to Guernica and race it against the price of eggs, you insensitive clod!

Re:How oddly reminiscent (1)

morgauxo (974071) | about 10 months ago | (#44874721)

Obviously AC never watched Home Improvement.

Re:How oddly reminiscent (1)

Big Hairy Ian (1155547) | about 10 months ago | (#44871605)

Actually it's more reminiscent of the Kobe earthquake except that this time only 10% of the eggs were in one basket rather than the 100% that were in Kobe. Only 10% and it's still effecting market prices??? Does this mean if we burn down Citroen global car prices will go up???

Re: How oddly reminiscent (1)

Travis Repine (2861521) | about 10 months ago | (#44871741)

Why is it that ANY natural disaster, whether it be an earthquake, flood, etc., always drives those prices? The answer: To make up for lost profits during downtime production. That's why too you'll see gas prices go up when a significant tropical system is to hit the U.S.: the anticipation of lost profits. Yes, its a sad world we live in, when money is only thing that people think about..

Re: How oddly reminiscent (2)

ShanghaiBill (739463) | about 10 months ago | (#44871903)

The answer: To make up for lost profits during downtime production.

You have no idea how markets work. Producers can't just dictate prices based on desired profit levels. If they could, why would they set prices to maximize profit only after a disaster, rather than all the time?

That's why too you'll see gas prices go up when a significant tropical system is to hit the U.S.: the anticipation of lost profits.

Prices go up because demand goes up. Drivers top off in anticipation of future shortages. People often misunderstand these price rises because they think a 10% supply shortage should result in a 10% price change. That is wrong. A 10% supply shortage means prices need to increase enough to cause a 10% drop in demand. For gasoline, short term demand will fall less than 10% even if prices double.

Re: How oddly reminiscent (0)

Anonymous Coward | about 10 months ago | (#44872411)

Because natural disasters don't affect supply at all.

Re: How oddly reminiscent (1)

Anonymous Coward | about 10 months ago | (#44873935)

>Prices go up because demand goes up.
Or supply goes down during a "disaster" while demand remains more or less the same.

Fortunately (0)

Anonymous Coward | about 10 months ago | (#44871053)

I have just decided that I have no need for RAM or bullshit. Do get back to me if you have decided that you're done selling bullshit and want to sell RAM again.

Just in time... (2)

EvanED (569694) | about 10 months ago | (#44871069)

Just a couple of weeks before I was planning on building a new computer. Wonderful.

And since the most interesting, useful, and relevant piece of information was left out of the summary, prices have gone up 27% since the fire.

Re:Just in time... (2)

gigaherz (2653757) | about 10 months ago | (#44871283)

So, a factory that manufactures 10% of the DRAM had to stop production for 3 days, and resumed at 50% capacity afterwards. It means only roughly 5% of the total production has been affected, but prices go up 27%.... Yay for capitalism.

Re:Just in time... (3, Insightful)

DarkOx (621550) | about 10 months ago | (#44871347)

How much do you think prices should go up and based on what. A 5% decline in production does not correlate with a 5% price hike.

DRAM gets faster and denser all the time you don't produce in much excess over the expected demand. So when 5% of the production goes away 5% of the orders go unfilled, if those customers want to keep building their phones, pcs, etc; they have to compete on price to not be the ones that don't get their memory delivered on time. Margins on all those end products get squeezed and used to chase DRAM, and that is what you fight at the retail level.

So yes yea capitalism for directing the memory to its most profitable use; if you want to criticize capitalism for something you might want to look at why the supply chain is so remote, thin and vulnerable.

Re:Just in time... (2)

TheRaven64 (641858) | about 10 months ago | (#44871577)

If production went down 100% (i.e. no more DRAM is produced), would you expect prices to only go up 100% (i.e. double)? I think that supply-demand curves don't look how you think they look...

Re:Just in time... (1)

gigaherz (2653757) | about 10 months ago | (#44871803)

I never said prices should have gone up 5% only, just 27% seems WAY too much.

Re:Just in time... (2)

ShanghaiBill (739463) | about 10 months ago | (#44871939)

I never said prices should have gone up 5% only, just 27% seems WAY too much.

Since 95% of the customers are willing to pay 27% more, why is it too much?

If you think it is too much, there is a simple solution: Don't buy it.

Re:Just in time... (0)

Anonymous Coward | about 10 months ago | (#44872125)

Yes, drink the Kool-Aid. This kind of news doesn't just lower the supply by the amount that can't be produced due to the fire. It lowers the amount by the amount that is needed to get a 30% price hike. How does it happen? If you said "price fixing", then you must not hold your fellow human beings in high regard. Although you might be right, the news of a fire in the vicinity of a DRAM production facility is a clear enough signal that no actual price fixing has to happen. If you can hike the price up 30% by selling 15% less, you do it, because 0.85*1.3>1. But yes, the only solution is to stop buying unless you absolutely have to buy now.

Re:Just in time... (0)

Anonymous Coward | about 10 months ago | (#44872897)

Hey market puppet, how does it feel to have the Invisible Hand shoved up your ass?

Re:Just in time... (1)

Hamsterdan (815291) | about 10 months ago | (#44871657)

They are taking advantage of this (kinda like gas prices). I'm pretty sure if GM had to slow down production Ford wouldn't raise their prices.

Re:Just in time... (1)

ShanghaiBill (739463) | about 10 months ago | (#44871977)

They are taking advantage of this (kinda like gas prices).

What do you propose they do instead? Use a lottery to allocate supplies? What would prevent the lottery winners from reselling? Would you be willing to pay higher taxes to police the resulting black market?

Re:Just in time... (0)

TheGratefulNet (143330) | about 10 months ago | (#44872057)

capitalism doesn't work. its a failed concept. and we are seeing it really fail in our lifetimes.

nice experiment but can't we declare it a failure and move on to something new?

oh right, those at the top LOVE capitalism and keep us so misinformed that we continually vote against our own best interests.

Re:Just in time... (1)

MrNJ (955045) | about 10 months ago | (#44872953)

Not just "those on top"
I immigrated to the USA from the socialist paradise and I am not looking back. As far as RAM - I am quite happy that over the last 20 years the density has increased about 1000-fold, the speed has increased substantially, all at the same price-points. It's no coincidence that the improvement happen in the capitalist economy.

But keep demanding "bread and circuses" See how that works out.

Re:Just in time... (2)

ShanghaiBill (739463) | about 10 months ago | (#44873643)

capitalism doesn't work. its a failed concept.

The market adjustment described in TFA, seems like an example of capitalism working quite well. What alternative mechanism do you propose to allocate limited supplies? A central planning politburo? War?

we are seeing it really fail in our lifetimes.

American per capita GDP, adjusted for inflation, has more than quadrupled in my lifetime. That is not a failure.

nice experiment but can't we declare it a failure and move on to something new?

What do you propose to replace it with? Kim Jong Un? Raul Castro?

Re:Just in time... (0)

Anonymous Coward | about 10 months ago | (#44874413)

Capitalism, really? It looks more like price fixing. It's incredible how the rest of global dram manufacturers can't increase their production to compensate 5% (or at least some of it).

Re:Just in time... (1)

fast turtle (1118037) | about 10 months ago | (#44874243)

I'm in a similar fix but it also provides a very nice reply about replacing a system that I just upgraded the CPU in - went from an dual to a quad core in July so instead of building a new system, I'll just upgrade this one to serve me better and no I don't need more performance. Storage is the problem and a pair of 1TB or larger drives will solve that issue nicely.

Opportunity knocks ? (1)

MadX (99132) | about 10 months ago | (#44871089)

For the supply chain to hike the prices that is .....

Re:Opportunity knocks ? (1)

hlavac (914630) | about 10 months ago | (#44871465)

They learned a trick or two from hard drive manufacturers it seems... opportunity for all to rise prices at once!

This is why terrorists are stupid. (4, Insightful)

tlambert (566799) | about 10 months ago | (#44871091)

This is why terrorists are stupid. Damage an air conditioner, unprotected from a parachutist, on the outside of a DRAM plant = billions of dollars of economic damage.

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871127)

Where's the damage? Most of the price increase ends up with the merchant: They sell a more expensive good and make even more money on it. If you really wanted to do some economic damage, you'd have to flood the market with cheap high quality RAM. More RAM makes bloated software acceptable, thus devaluing the work of good programmers. Remember, without scarcity, there is no market.

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871209)

It's obviously damages the people buying RAM.

A company in the process of building a supercomputer? A country replacing some importat system? Hit the RAM, HDD, CPU, whatever manufacturer at the right moment.

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871215)

Where's the damage?

In the consumers' pocket.

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871133)

Don't give them any ideas!!!

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871163)

No, thats why MONOPOLIES are stupid and should not be helped by the goverment....alas they dont care so yeah... lets blame the terrorists... they are the real bad guys there.

Re:This is why terrorists are stupid. (2)

fuzzyfuzzyfungus (1223518) | about 10 months ago | (#44871365)

No, thats why MONOPOLIES are stupid and should not be helped by the goverment....alas they dont care so yeah... lets blame the terrorists... they are the real bad guys there.

This is true; but not particularly relevant: RAM manufacture, while it factors into the price of almost everything, is not an industry characterized by particularly brilliant margins or market power. The bigger issue is that semiconductor manufacturing has dangerously high economies of scale (or, alternately, it's damned expensive to spread it out, depending on whether your glass is half full or half empty). This one plant made 10% of the RAM used by the entire world. If Hynix only owned one fab (as opposed to this one and however many others supply the other two thirds of their capacity), they'd be more screwed as a company; but we'd likely still see the same effects. Idle fab capacity is a very, very, expensive thing to waste, so there isn't much incentive to have 'spare' capacity lying around just in case, and a large fab is quite productive indeed, so losing one, even for a modest period, means a significant loss of supply.

Re:This is why terrorists are stupid. (2)

Sockatume (732728) | about 10 months ago | (#44871195)

You're assuming that the objective of terrorism is to cause generalised harm. If that was the goal it'd be even easier for them to just stay at home and punch each other in the face.

A man can dream.

Anyway, to complete the thought: terrorism is about retribution, and about conveying a political message. Those actions have specific targets, and raising the price of memory does not necessarily affect those targets to the extent or with the specificity demanded.

Re:This is why terrorists are stupid. (1)

fnj (64210) | about 10 months ago | (#44871487)

Terrorism is just a tactic in a struggle, and the struggle can be about a lot more than retribution. It can be about degrading the enemy's capability as well as his will and morale. Psychologically manipulating the enemy to get him to incur vast expenses in defense against that terrorism, and damage his own liberty and quality of life is an extremely effective tactic and a brilliant tool in asymmerical warfare. History will be studying the self-destruction of the USA due to 9/11 for a long time. People will marvel at the helplessness and stupidity of the USA, manipulated and pwned for a shockingly tiny economic investment by the opposition.

Re:This is why terrorists are stupid. (1)

tlambert (566799) | about 10 months ago | (#44871997)

You're assuming that the objective of terrorism is to cause generalised harm. If that was the goal it'd be even easier for them to just stay at home and punch each other in the face.

A man can dream.

Anyway, to complete the thought: terrorism is about retribution, and about conveying a political message. Those actions have specific targets, and raising the price of memory does not necessarily affect those targets to the extent or with the specificity demanded.

Terrorism is a form of asymmetric warfare. All warfare is waged with a goal of defeating or disabling or stalling the enemy; whether you measure this as "toppling their government", "evidencing a strong threat of retribution for political intervention in a region/country not their own", or "causing the enemy to engage in domestic expenditures of resources and/or to engage in policies objectionable to its citizenry as a means of causing them to disengage from external matters" is irrelevant.

The 9/11 attacks were more or less effective at the third of those. They might have been effective at the second of these as a target goal as well, but the US general population is blithely unaware of the activities the US government takes in implementation of its foreign policy, if they are even aware of US foreign policy at all. This is manifestly evident in the US public perception of the Snowden revelations. Clearly, the government became aware fairly quickly of the perpetrators, and were they persuadable on #2 at all, they were (apparently) not persuaded. Quite the opposite.

Perhaps the next set of terrorists will take that lesson to heart, and make an announcement prior to an attack regarding their demands, and then only follow through on the attack if the demands are not met; they won't be, but it will be seen as a consequence of the US government having a non-appeasement policy, and a post-announcement to the effect that the actions were "regrettable, but necessary" would tent to weigh heavily on regime change in the US - #1 - with the caveat that we worked out how to do that more or less peacefully every 4 years anyway over 200 years ago. It would also weigh somewhat less heavily on #2, since a general public, informed of the dangers and consequences of the then-current US foreign policy would then be in a position to put electoral pressure on their elected public officials. We might even see something as counterproductive as a "Peace Party" dedicated to US isolationism to avoid future incidents.

Either way, missing 3 months of 50% of the RAM production from Hynix from this FAB is going to hurt us. It is not just a case of the price going up due to diminished supply: lack of supply will impact production of devices using that RAM, and the inability to get supply because it's grabbed up by people with more margin to shrink out will leave some manufacturers with no RAM.

If you were to hypothetically project a 3 month supply gap window on, for example, all Intel mobile processors, as a result of a simultaneous attack on a, relatively speaking, small number of FAB targets (all that actually necessary is breaking the clean room viability; no loss of life required), you can see what that would do to economies which relied on that production not being interrupted.

Asymmetric warfare is about leverage, and Western nations foreign policies, at least these days, are about economics. So in closing, I will reiterate my initial point: this is why terrorists are stupid.

Re:This is why terrorists are stupid. (1)

David_Hart (1184661) | about 10 months ago | (#44874397)

Either way, missing 3 months of 50% of the RAM production from Hynix from this FAB is going to hurt us. It is not just a case of the price going up due to diminished supply: lack of supply will impact production of devices using that RAM, and the inability to get supply because it's grabbed up by people with more margin to shrink out will leave some manufacturers with no RAM.

If you were to hypothetically project a 3 month supply gap window on, for example, all Intel mobile processors, as a result of a simultaneous attack on a, relatively speaking, small number of FAB targets (all that actually necessary is breaking the clean room viability; no loss of life required), you can see what that would do to economies which relied on that production not being interrupted.

Oh, noze... Limited supplies of new Apple iPhones, Samsung phones/tablets, Xbox One, and PS 4's just before Christmas!!! Oh, the painnnnnn.... Society will come crashing down around us... (grin)

 

Candles (0)

Anonymous Coward | about 10 months ago | (#44871315)

This is why terrorists are stupid. Damage an air conditioner, unprotected from a parachutist, on the outside of a DRAM plant = billions of dollars of economic damage.

How many candlelit vigils have have you seen organized for the loss of DRAM factory?

Now how many were there for the Boston bombings?

Terrorists aren't so stupid.

Re:Candles (1)

tlambert (566799) | about 10 months ago | (#44872073)

This is why terrorists are stupid. Damage an air conditioner, unprotected from a parachutist, on the outside of a DRAM plant = billions of dollars of economic damage.

How many candlelit vigils have have you seen organized for the loss of DRAM factory?

Now how many were there for the Boston bombings?

Terrorists aren't so stupid.

How many candlelit vigils does it take to result in a substantial change in US foreign policy, or the instrumentality used to implement said policy?

So how effective were those attacks, again? What substantive, measurable progress towards their goals was achieved? Are we even generally aware of the goals of the attack? If not, how can the US electorate impact the policy decisions of their elected officials in such a way as to preclude future attacks?

To be totally direct and unequivocal, those attacks were totally ineffective at achieving anything but lost work days and candle sales, which were unlikely the terrorists goals which motivated the attacks in the first place.

Re:This is why terrorists are stupid. (0)

Anonymous Coward | about 10 months ago | (#44871951)

And the terrorists could ask Samsung to sponsor the operation.

Gosh I feel lucky (0)

Anonymous Coward | about 10 months ago | (#44871097)

By buying 32 gigs of ram a few months back.

Re:Gosh I feel lucky (1)

Anonymous Coward | about 10 months ago | (#44871199)

Hi, where can I download more RAM?

Re:Gosh I feel lucky (1)

Somebody Is Using My (985418) | about 10 months ago | (#44872825)

Hi, where can I download more RAM?

You may wish to contact the developers [wikipedia.org] of this software [amazon.com] and ask if they will make it available as a digital download.

Penny wise, pound foolish (1)

David Govett (2825317) | about 10 months ago | (#44871123)

It's wise to put your company's future in the hands of people overseas. Nothing could go wrong there.

Re:Penny wise, pound foolish (1)

heypete (60671) | about 10 months ago | (#44871153)

It's wise to put your company's future in the hands of people overseas.
Nothing could go wrong there.

Because manufacturing facilities in $YOUR_COUNTRY_OF_RESIDENCE don't ever experience fires or other production-halting mishaps?

Re:Penny wise, pound foolish (1)

CastrTroy (595695) | about 10 months ago | (#44871901)

Exactly. Fires like this don't happen often enough that I would think they would be any less common in a first world country. Also, they had the fire on Sept. 4, and resumed (some) operations on Sept. 7. That's only 3 days of operations being completely halted. In a first world country, because of safety concerns, I could see production being shut down for much longer. Plus, first world countries have all sorts of other things that slow down production. Like unions. Imagine if the workers went on strike for a few weeks. That could really mess up production. Personally, I'm looking forward to the point where these fabs are almost completely staffed by robots. Should bring prices down a bit, and it will stop people complaining about the terrible working conditions.

Re:Penny wise, pound foolish (0)

Anonymous Coward | about 10 months ago | (#44871267)

China is not overseas for Hynix. It is connected to South Korea by land.

Price Increase? BULLSHIT! (5, Insightful)

mrpacmanjel (38218) | about 10 months ago | (#44871131)

So let me get this straight:

A single manufacturer (2nd-largest market share though) suffers reduced production of chips (silicon not deep-fried - sort of!)
Manufacturing plant will be operational within a month
There are other manufacturers that make the same thing
Another manufacturer has largest market share
10% world-wide "shortage" is result

Global prices have to increase?....Sorry, I smell bullshit.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44871165)

Maybe it was Sam-otage?

Re:Price Increase? BULLSHIT! (-1)

Anonymous Coward | about 10 months ago | (#44871225)

Lets consider the world supply as a cake. 15% of the cake has just gone missing (assuming Hynix is being completely truthful that their currently operating production line is operating as high quality - which is questionable imho). No problem..still lots of cake right? No. Because at any given moment in time, 80-85% of the cake is already pre-allocated on contract to certain OEMs (like Apple). This leaves a tiny piece of cake available for people who buy on the spot market (no contracts because they like to buy on the cheap) for them to build their products with. This is why the SPOT market price is going up.

And to forestall followups: a new plant costs billions and years to build. The industry is in a bit of a transition to 3d architecture (not yet quite ready to produce at scale) so there is no economic incentive even if prices were to double to build new capacity using the current planar DRAM approach.

Re:Price Increase? BULLSHIT! (4, Insightful)

Xtifr (1323) | about 10 months ago | (#44871257)

It's worse than that. If this plant produced 10% of the world's supply, and its output was cut in half, that means we've only lost 5% of our normal production.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44871463)

It's worse than that. If this plant produced 10% of the world's supply, and its output was cut in half, that means we've only lost 5% of our normal production.

AND that's assuming that the plant was operating at full capacity. So, more than likely it is even less.

Re:Price Increase? BULLSHIT! (1)

fnj (64210) | about 10 months ago | (#44871551)

Still worse. Impact is loss of production rate times time. If the loss of production rate is for an almost trivial period, actual impact is slight. For example, if you reduce 10% of production rate by half for one month, the loss of production for that year is only 0.42%.

CRAPitalism is always such an efficient, unabashed source of self-aggrandizement for the contemptible overlords on easy street at the top. The RAM price will probably shoot up 50% or more for a lengthy period, and do you think any of the factory workers will see the slightest bit of that windfall? HAH! It all goes straight to the top.

Re:Price Increase? BULLSHIT! (1)

rsmith-mac (639075) | about 10 months ago | (#44872915)

Very true, but that's 5% of normal production when there's already a shortage. The DRAM market is highly cyclical, so this is coming at the point in the cycle where prices are already on the rise due to a shortage of production, which is just about the worst time for this to happen.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44871259)

It is bullshit. We get these stories periodically. Editors love them because they open a window on how our world is all connected, globalization, geopolitics, little do we imagine when looking at porn on our iPad what disparate forces have come together to assemble it, yadda yadda yadda.

Lack of truth is not really an important consideration here.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44871371)

Global prices have to increase?

of course they do.

dram production is a business...the manufacturers are in it to make money.. they don't care how or why prices go up -- only how high their margins are and how often and to what extent they can get away with jacking up prices.

in the case of dram, it's also a commodity.. traded similarly to grains, milk, barrels of oil, and precious metals... so its prices are also driven by current events just as the stock market is. this current event is bad news for production. regardless of how minor the interruption in supply actually is, prices go up more than they should. no one likes it except those who stand to profit from it.. but that's the way a free market works.

what slashdot reader doesn't have a few extra ram modules laying around from cheap sales? the extra ddr3 we got here was something like 2 bucks a gig.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44871519)

You're not aware of Just-In-Time manufacturing, I take it? Orders and deliveries are scheduled months in advance, if not years. Prices will increase in proportion to how late you order(ed), with longer-running and larger contracts prioritised.

You bought your DRAM a year ago? It's almost certainly going to be shipped on-time at the original quote. You want to buy DRAM now? Too bad, some guy who ordered 4 months ago has priority. Maybe we can find some if you pay extra to compensate us for paying someone else's late delivery fees.

Re:Price Increase? BULLSHIT! (1)

fustakrakich (1673220) | about 10 months ago | (#44871529)

Global prices have to increase?....Sorry, I smell bullshit.

Regardless of the smell, prices will increase. We all know why, but it doesn't matter.

Re:Price Increase? BULLSHIT! (1)

EvilSS (557649) | about 10 months ago | (#44871781)

Been here, done this before. It seems like every time DRAM prices get to a certain low point, a factory catches on fire and the prices rebound. It's like clockwork.

On a side note, am I the only one who read the headline as "Chinese DRM Plant Fire...." ?

Re:Price Increase? BULLSHIT! (1)

tlhIngan (30335) | about 10 months ago | (#44873401)

So let me get this straight:

A single manufacturer (2nd-largest market share though) suffers reduced production of chips (silicon not deep-fried - sort of!)
Manufacturing plant will be operational within a month
There are other manufacturers that make the same thing
Another manufacturer has largest market share
10% world-wide "shortage" is result

Global prices have to increase?....Sorry, I smell bullshit.

DRAM is a commodity like oil, pork bellies, orange juice, gasoline.

it's traded on a global scale, and production generally meets demand. Margins are very low because of intense competition and pricing that's effectively determined by sellers (which regulates production). It's also a very perishable product in that the value of it decreases as time progresses because if you can't get rid of your DRAM within a couple of months, someone will come out with bigger/better/faster and devalue your stock for you.

And unlike necessities like oil, no one stores DRAM (see perishable).

Additionally, this is mass production season - demand for DRAM is at its peak around this time of year as manufacturers are gearing up for the holiday season and many existing contracts need fulfillment. Those who did not lock in their rates by preordering ahead of time has to buy what scraps are left over after the Apples, Samsungs, HPs and especially now Sony and Microsoft have taken their cut.

That 10% cut could easily mean there's just no spare RAM for smaller players to buy because everyone else with fixed-deliverable contracts get first priority in the line of what's left. So if you were thinking of building a PC, you might not be able to buy RAM for it because manufacturers cannot make any as there's no unclaimed ICs left.

So it may not mean anything to the Dells and Apples who are guaranteed their stock by contractual obligation, but for everyone else, it means a whole lot.

And even so, it can also mean the big guys are shorted - production generally follows their orders as they order the vast majority of parts - excess you generally want to have little of because that means having to sell to smaller players. If contracts take up 95% of the world supply, that 5% means no spare ICs unless you ordered well in advance, or can delay manufacture enough to sell your existing stock at elevated prices and purchase them later again.

The latter does happen, but only if you can absorb the delay - if you want stuff out for the holidays, you have to be manufacturing now because you need product boxed up by October for shipping to retailers by November to have It on shelves by late November.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44874335)

I used to be a purchasing agent for a plumbing supply company, and the Copper tubing industry pulls this silly BS all the time. Same exact scenario.

Re:Price Increase? BULLSHIT! (0)

Anonymous Coward | about 10 months ago | (#44875609)

And yet you probably don't have a problem when an oversupply causes all manufacturers to sell parts at below cost? Heaven forbids that a company actually makes money on the parts they produce and take advantage of a shortage to try and make up for years of losing money because of the over supply. People on this site are really clueless.

i call (0)

Anonymous Coward | about 10 months ago | (#44871147)

BS

inb4 (4, Funny)

Hognoxious (631665) | about 10 months ago | (#44871179)

inb4 the idiots who don't understand price elasticity [wikipedia.org]

Price Gouging ahead ! (1)

Pop69 (700500) | about 10 months ago | (#44871187)

Prices through the roof, not because there's a shortage but because the press talks up the perception that there's a shortage.

Did the price of hard drives ever come back down after the flood ?

Don't care personally, no RAM upgrades on the horizon and my personal desktop was upped to 32 gig last month

Scare tactics (4, Insightful)

jklovanc (1603149) | about 10 months ago | (#44871227)

It is strange how a 5% (a plant producing 10% working at half capacity) reduction in capacity can result in large price changes. This is where I have issue with supply/demand pricing. If one can convince buyers something is scarce the price goes up even when the scarcity is not real.

Re:Scare tactics (1)

fuzzyfuzzyfungus (1223518) | about 10 months ago | (#44871405)

It is strange how a 5% (a plant producing 10% working at half capacity) reduction in capacity can result in large price changes. This is where I have issue with supply/demand pricing. If one can convince buyers something is scarce the price goes up even when the scarcity is not real.

I'd assume that the 'price' being quoted is spot, which you would expect to be more volatile because of the percentage of the RAM capacity that is allocated to entities who buy through longer-term contracts. If a nontrivial percentage of the production was already spoken for (and by the big customers who you don't want to piss off) well before it rolled off the line, an unexpected reduction in supply is going to be taken out largely on people who have no such arrangements in place.

The question will be whether the prices charged by people who do have stable supply contracts will also remain largely stable, or whether they'll take the opportunity to plead RAM price increase as well...

Re:Scare tactics (1)

fast turtle (1118037) | about 10 months ago | (#44874569)

and I saw a shining example of this in regards to the Taiwan Floods. Bought a 1TB external drive a few days before the floods and the next week the same drive had increased by $20 even though it had already been manufactured and was on the damn shelf when I'd bought mine.

Yea! Capitilism works quite well if you want to be screwed.

Re:Scare tactics (1)

DarkOx (621550) | about 10 months ago | (#44871431)

Its not always just FUD that runs prices up though. As others have pointed out idle fab capacity is very expensive; so there usually isn't much, and if there was margins on the product would need to be higher to cover it so prices would be nominally higher even if there were fewer shocks.

So if we assume there is little or no unsold bulk DRAM under normal conditions and there is little extra FAB capacity you might easily have a situation like the following.

Joe and Bob produce Whatsits, one of their inputs is widgets, 5 widgets go into each whatsit. Joe and Bob both have fixed costs there is rent on the shop where they assemble whatsits and they each have some sales staff to market them who get a salary. If production of whatsits stops they don't just not make money the lose it.

Now Ted tells Joe and Bob; look there was a fire and I can bring only 9 widgets to market, one of you is only getting 4. Sure 90% of the normal supply of widgets is still available; but depending on their cost structure and how much margin they make on a whatsit, Joe and Bob might each be willing to pay Ted quite a lot more than usual to make sure they get that 5th widget.

They maybe even more than the profit they make per whatsit if the situation is temporary and the selling a whatsit at a net loss will be a smaller loss than not selling one at all. That means over the short term the price of a widget might go up a great deal.

Re:Scare tactics (0)

Anonymous Coward | about 10 months ago | (#44872235)

It doesn't matter that idle capacity is expensive. They're trying to make a profit, not break even. If you can run at 85% capacity but sell the product at a 30% higher price, then you do so, idle capacity be damned, because that way you earn more than running at 100% capacity and selling at the normal price. All it takes is a trigger signal so that all competitors know what to do without getting involved in actual price fixing.

People understand price elasticity. What you need to understand is that supply and demand is not god-given.

Re:Scare tactics (1)

cbope (130292) | about 10 months ago | (#44871533)

Two words: artificial scarcity

For reference, please refer to gas prices at the pump.

Re:Scare tactics (0)

Anonymous Coward | about 10 months ago | (#44871603)

All I've ever heard about DRAM production the last few years is "overproduction" and "profitability must go up".

If they're telling the truth about the scope of the outage (which I doubted from the first second), then a 27% global price hike is based on hype, not reality.

Re:Scare tactics (1)

khallow (566160) | about 10 months ago | (#44871631)

So what's strange about it? The large price changes are temporary and due to the customers with the most inelastic short-term demand. And it's an oligopoly situation, so the other suppliers have ample means to throttle supply and increase prices, both legally and illegally.

Collusion (0)

Anonymous Coward | about 10 months ago | (#44871703)

The key ingredient is collusion. Without collusion, the opportunity would arise for one or more chip makers to step in and fill the gap, thereby taking that business for themselves. There is a clear opportunity for profit, and therefore motivation to fill the gap, and there are only two ways to prevent this from happening: collusion, or coercion (i.e. government).

Re:Scare tactics (0)

Anonymous Coward | about 10 months ago | (#44872011)

Of course the natural response to this sort of tomfoolery is to not buy ram until the prices come back down.

Re:Scare tactics (1)

Solandri (704621) | about 10 months ago | (#44876041)

There's nothing strange about it at all. You're assuming a straight-line supply/demand curve, and a 45 degree one at that. Real-world supply/demand curves are almost never straight lines, and almost never 45 degrees.

Commodities like DRAM chips are extremely low margin, so a small decrease in costs can represent a large increase in profit. i.e. a 0.1% drop in cost to produce may not sound like much, but if your profit margin is 0.5%, it's a big increase in profit. Consequently these plants (and the wholesale computer industry in general) operates on very thin margins and practice just-in-time manufacturing to keep inventory costs to a minimum. You know how you can custom-order a system on Dell's or Lenovo's website? That's not for your convenience; that's so the company can keep its costs down by shipping a system to you as soon as they receive the components from China.

When there's a shortage in a primary component like memory, it becomes a game of musical chairs. No vendor wants to be the one left stuck without enough memory - that'll mean they need to warehouse tens if not hundreds of thousands of computers until they can find memory to install in them. Warehouse space they probably don't have and will have to rent. Consequently they all rapidly bid up the price of the remaining memory, up to the price where renting warehouse space would be cheaper.

In other words, the price increase isn't proportional to the price of memory, it's proportional to the price of warehouse space. So it makes no sense to expect a 5% drop in supply to correspond to a 5% increase in the price of memory. The price increase will be the cost to warehouse 5% of the computers that are queued up to be built, which may be a lot more than 5% the price of memory.

Re:Scare tactics (1)

jklovanc (1603149) | about 10 months ago | (#44876233)

This analysis is based on the assumption that a 5% decrease in production can not be made up by other manufacturers. The telling question is whether or not all buyers are being supplied with the chips they need. Is the price increase due to manufacturers not getting part of the fear of not getting parts? If everyone is getting what they need then it is an artificial shortage.

COMPONENTS (0)

Anonymous Coward | about 10 months ago | (#44871353)

Apple components, Samsung components. ALL MADE IN CHINA!

Re:COMPONENTS (0)

Anonymous Coward | about 10 months ago | (#44871475)

In soviet China, DRAM memorizes you!

they are dredging up this tired scam again? (1)

methuselah (31331) | about 10 months ago | (#44871503)

Back in the 80' they would pull this crap every other year. go look it up. I thought it was bullshit then and I call bullshit now.

Price fixing (0)

Anonymous Coward | about 10 months ago | (#44871505)

nothing else needs to be said.

Speculation, pure and simple (0)

Anonymous Coward | about 10 months ago | (#44871507)

The only reason the price is rising is because of speculation and greed. When speculators who have no intention to use a resource are allowed to buy it, shit like this happens. It's a quick pump and dump on bad news, and nothing else.

Oil does exactly the same thing... (1)

Anonymous Coward | about 10 months ago | (#44871549)

...make a scare tactic like war or hurricane, drive up prices.

And do you think the prices will go down after the production is back online?

They do the same thing with toll levies on road construction. After the road has been long paid for, they keep the cash cow mooing.

I don't care. (1)

ArcadeMan (2766669) | about 10 months ago | (#44871917)

I don't need memory or RAM.

Buy on the Rumor, Sell on the fact. (1)

Virtucon (127420) | about 10 months ago | (#44872131)

Buy the rumor, sell the news is something that happens in most markets. Sometimes traders trade based on what they believe will happen in a given economic report or event, like this fire. Once the event passes or the report is released, they dump their positions and the market moves.

Take a look at $SOX, [msn.com] the PHLX Semiconductor Index Fund. [wikipedia.org] it shot up and although it's not specifically tied to memory manufacturers, there's a bullish sentiment on the semiconductor industry over this one little fire. It shot up at the same time the fire hit and it's up 9% since August 27. I'll bet it'll sink back down once Hynix is back in full operation.

Nope (0)

Anonymous Coward | about 10 months ago | (#44872351)

I wouldn't buy Chinese DRAM if my life depended on it. The best stuff comes from Japan, then the United States.

Bullshit (1)

Bastardinho (1249572) | about 10 months ago | (#44872663)

Such bad luck that these DRAM factories keep burning one after the other. Maybe they make them out of wood?

Investigate this bullshit (0)

Anonymous Coward | about 10 months ago | (#44873447)

We know this is fake. We know that factory was completely empty, and the fire has destroyed nothing.

The fire didn't driver up the prices (0)

Anonymous Coward | about 10 months ago | (#44874873)

the greedy bastards did.
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