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One-and-a-half price hikes in memory price monopoly?

After receiving complaints from mobile phone manufacturers, regulators began to focus on memory chips that have continued to rise prices for six quarters and will continue to increase prices in the first quarter of next year. On December 21, a number of informed sources told the 21st Century Business Herald reporter that “The NDRC has already discussed Samsung on this issue.” However, it is not certain whether an anti-monopoly review will be launched.

Samsung is the world's largest manufacturer of memory chips, with its DRAM product market accounting for approximately 48% and NANDFlash product market accounting for approximately 35.4%. DRAM and NAND Flash are two main products of memory chips. The former is mainly used for memory, and the latter is used for storing data in flash memory. Both types of products are widely used in mobile phones, computers, and server markets. According to the analysis agency China Flash Memory Market (CFM), in 2017, the global storage chip market is 950 billion U.S. dollars, of which DRAM is about 50.35 billion U.S. dollars and NAND is about 40 billion U.S. dollars.

In Q3 2016, the memory chips began to enter the price increase channel due to the shortage of supply in the market, and caused mobile phones, solid-state hard disks, memory modules and other products to rise in price one after another. Among them, the popular mobile phones are generally priced at 100-200 yuan, and the newly-released flagship price is about 300 yuan more than that of the previous stalls, and the crazy memory bar is a 300% increase in one year.

At the beginning of 2017, most industry analysts predict that the price increase of memory chips will end in the second half of this year according to the manufacturer's production cycle. However, currently, the price reductions are basically postponed until the second half of 2018.

Profit soaring

"Storage exceeds the screen and CPU and becomes the biggest cost of mobile phones," a mobile phone manufacturer told reporters, "The cost of storing in mobile phones has reached 25% -35%, and the shipment of mobile phones is not very large mobile phone manufacturers have no words at all. The price of flash memory of different capacities has risen by more than 30%-40% since the beginning of this year." For example, the source said, "The price of 32G and 64G flash memory is increased by 5 dollars and 10 dollars each time, and the price adjustment of 128G is It's $20, which is very scary for mobile phone manufacturers."

Global storage chip suppliers are only Samsung, Micron, Toshiba, Hynix, Western Digital and other companies, among which Samsung, Micron and Hynix occupy more than 90% of the market share in the DRAM market.

Huge gains have brought huge profits to these chip giants. Samsung’s latest financial report shows that in Q3 2017, Samsung’s revenue reached US$54.5 billion, a year-on-year increase of 29.7%, and net profit was US$12.76 billion, a year-on-year increase of 179.47%. In the first three quarters of 2017, Samsung’s total revenue was US$152.456 billion, an increase of 16.8% from US$130.446 billion in the first three quarters of 2016. However, the profit for the first three quarters of 2017 was US$33.81 billion, a year-on-year increase of 92.3%. After the terminal business lost due to “battery explosion”, semiconductor became Samsung’s main profit source.

It is worth mentioning that in 2017 Q2, thanks to the continuous increase in the price of memory chips, Samsung Semiconductor's revenue was 15.73 billion US dollars, more than Intel's 14.776 billion US dollars, becoming the world's largest chip company for the first time. From June 1, 2016 to the present, Samsung's share price has risen from 1.33 million won to 2.554 million won, an increase of 90%. In November 2017, Samsung created the highest stock price in more than a decade, reaching 2.86 million won.

According to Taiwan's relevant industry chain news, Samsung and Hynix have announced that they will increase the DRAM sales price by 3%-5% in the first quarter of next year, and the price of storage products will continue to increase.

As the world's largest producer and consumer market for electronic products, China has become the largest congested market for this wave of price increases. However, PC and mobile phone manufacturers have almost no price bargaining power in front of several oligarchs. Even Foxconn, which is best at supply chain management, cannot do anything about the price. A Foxconn source told reporters: “The market has obviously felt that it is saturated. At the beginning of the year, we could not buy a product with money. Now we can buy it for money, but The price is high."

Price monopoly

A number of industry insiders speculated that there was a price coalition among several big oligarchs. After all, this price coalition had appeared during 2000 and was later fined by the U.S. Department of Justice with a fine of 730 million U.S. dollars, which was the second largest antitrust fine in U.S. history.

In 2000, when the global Internet crisis hit the PC market, the scale of the PC market was greatly attenuated. At that time, companies such as Samsung, Hynix, Infineon, and Micron had just experienced expansion, and the price of DRAM was diving. The size of the DRAM market dropped from 28.8 billion U.S. dollars in 2000 to 11 billion U.S. dollars in 2001.

However, DRAM prices rebounded quickly after the market did not pick up, and prices rose more than 300% in half a year. Including Dell, HP, Apple, IBM and other companies directly bear the cost pressure brought about by price increases. This situation caught the attention of the U.S. Department of Justice. In 2002, the U.S. Department of Justice sent a summons to Micron, Samsung, Hynix, Infineon and other companies to sue their price monopoly behaviors and initiated an investigation later.

In the investigation, Micron Science and Technology pleaded guilty to surrendering to punishment. Later, from 2005 to 2006, Samsung, Hynix, Infineon, and Elpida successively acknowledged price monopoly. Samsung was punished by 300 million U.S. dollars, Hynix and Infinity. Ling and Erpida were fined 185 million U.S. dollars, 160 million U.S. dollars, and 84 million U.S. dollars, respectively, for a total of 729 million U.S. dollars.

Samsung’s 300 million U.S. dollar penalties are mainly for monopoly income fines. The U.S. Department of Justice held that Samsung had a price monopoly between 1999 and 2002. In the meantime, DRAM sales in the U.S. reached 1.2 billion U.S. dollars, and these sales were fined at 20%, reaching 240 million U.S. dollars. Dollars. It should be pointed out that this ratio is higher than the domestic fine standard. Previously, when the National Development and Reform Commission penalized Qualcomm, the benchmark for fines was Qualcomm’s 8% income in 2013 in China.

Although it is unclear whether the regulator will conduct anti-monopoly investigations on storage products that are currently subject to price increases, it is worth noting that price alliances may arise.

The cartel behavior of the oligopolistic market is not only used to control prices to create profits, but is also often used to squeeze out competitors. Now, the price increase that has been going on for a year and a half is providing more and more cash flow to Samsung and other storage giants. As Chinese companies enter the memory industry in the future, they will inevitably face Samsung, Micron, Elpida, etc. Business price competition.