The massive price hike for NAND memory used in SSDs is not only happening very quickly, but these new prices are also becoming part of a new normal.
“There is too little money and too little stock,” says Khein-seng Pua, CEO of Phison, referring to the current situation in the SSD market. The Taiwanese company manufactures controllers for SSDs and also brings complete drives to market.
Prepayment
The company does not manufacture the NAND memory that makes up SSDs itself. Phison must order this from suppliers, which is becoming increasingly expensive. While the SSD maker has agreements with NAND manufacturers worldwide, it still has to ask its own customers to pay faster or even in advance. After all, that is what the suppliers are demanding as well.
These shifts are impacting Phison’s target market. 30 percent of revenue now comes from enterprise customers, including hyperscalers. Just a quarter earlier, that figure was only ten percent.
Cash reserves
It is these hyperscalers who are using their massive cash reserves to pay a premium for NAND. They do this to secure stock in order to build (AI) data centers at a rapid pace. For standard servers and PCs, insufficient stock remains. Furthermore, the financial picture is becoming skewed: NAND and DRAM now account for more than 30 percent of the total cost of a new computer.
Some NAND manufacturers increased their prices by half in a single day last week due to the imbalance between supply and demand, and the fact that major players are actually willing to pay that premium.
A quick change is not on the horizon, says Seagate CCO Ban-Seng Teh as well. He notes that the current crisis is very different from the classic cycles the storage market is used to. The CCO calls the current situation a supercycle. This is the same term Massimiliano Rossi recently used to describe the situation. The VP of Commercial Operations and Service for Acer EMEA also observed that the trend of falling prices for increasingly advanced technology has reversed for the foreseeable future.
Focus on NAND
The focus of the crisis has shifted to NAND and SSDs, after DRAM experienced similar price increases. However, the increase for DRAM was slightly more gradual. If NAND manufacturers implement all their predicted price hikes, NAND will be 200 percent more expensive by the second quarter of this year than before the turn of the year.
Manufacturers of SSDs, servers, or laptops with NAND inventory can now pass on higher margins on stock purchased earlier and more cheaply. This may briefly benefit profits, but as Khein-seng Pua points out, inventories are not at a level where significant gains can be made.
The entire sector is in agreement. Every party that needs NAND or DRAM is now singing the same tune. The price increases are structural, at least for the near future. The deep pockets of hyperscalers and major AI players will not run dry for the time being. Their urge to set up as many new AI data centers as possible at any cost—to meet a demand that does not yet exist but which they want to create—will weigh on the IT budgets of companies (and consumers) worldwide in the coming years.