At a recent technology conference in Korea, Samsung said it anticipates a global shortage of dynamic random access memory (DRAM) chips later this year. The shortage is expected as DRAM chip suppliers have shifted production capacity to the specialized chips used in wireless handsets and flash memory cards for digital cameras and other devices.
Basically, it's a classic tug-of-war between supply and demand. Spurred by recent increases in demand, suppliers are raising contract prices 5% to 10%. That increase, in turn, is driving personal computer manufacturers, like Dell
While the end result could be that PC manufacturers get stuck with a glut of chips, it is not likely. Global demand for new and specialized types of memory chips is on the rise, and that demand is robbing production capacity for the DRAM chips used in PCs. Industry analysts estimate, for example, that flash memory shipments grew by 38% in 2003.
Samsung, which is forecasting the DRAM shortage, is the leading supplier of DRAM chips. It is also the leading supplier of chips used in NAND flash memory cards. NAND is one type of flash memory that makes up 35% of the total flash memory market.
Furthermore, the company is a leading supplier of wireless handsets, which it expects to increase production of this year to 65 million from 56 million last year. As both a supplier and consumer, Samsung is in a unique position to predict and react to the supply of DRAM chips in the coming months.
With the increasing commoditization and razor-thin margins for PCs, every extra production cost is a negative for PC manufacturers. A bidding war for DRAM chips could be a drag on the earnings of companies such as Dell, Hewlett-Packard
Will Dell be able to keep its costs at bay? Talk about it with other Fools on the Dell discussion board.
Motley Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.