{"text":[[{"start":6.15,"text":"The writer is author of ‘Chip War’"}],[{"start":9.55,"text":"The world is poised to spend more money this year buying memory chips than soft drinks, shoes or smartphones. We’ll collectively allocate nearly 0.7 per cent of world GDP to purchase these chips — six times higher than the average of the past two decades. "}],[{"start":28.35,"text":"This surge in demand is well known, but the numbers are still staggering. Over the past two decades, spending on semiconductors averaged 0.47 per cent of world GDP per year, of which a quarter was on memory chips — used to store data in devices, from phones to data centres. This year, total spend on semiconductors is projected at 1.25 per cent of the world economy, more than half of which will accrue to memory companies. Next year’s spend may exceed 1.5 per cent of global GDP — roughly three times higher than three years ago."}],[{"start":63.65,"text":"The reason, of course, is AI and the data centre build-out. Nvidia is a roughly $5tn company because the world plans to spend around five times more on AI chips than it did three years earlier. As demand has surged, Nvidia has taken advantage by charging high prices, as its 75 per cent gross margins attest. Its suppliers have done the same, with chipmaker TSMC and equipment manufacturer ASML planning higher prices."}],[{"start":93.2,"text":"Memory chip companies, however, are unique in their price hikes. Micron and SK Hynix have both reported gross margins above 80 per cent. This will partly fund new capacity: Samsung and SK Hynix are building major new plants in South Korea, while Micron is expanding in Taiwan and the US. They have committed tens of billions of dollars in capex this year alone and announced hundreds of billions in planned spending over the next decade."}],[{"start":121.95,"text":"But the companies have also tried to take advantage of the cyclical market to raise prices as high as they can. As recently as 2023, memory chip companies were losing money, as prices slumped in an oversupplied market. Memory chips in phones and consumer devices are mostly commodities, with one provider’s products scarcely different from another’s. Customers rarely signed long-term contracts or showed much loyalty to any given provider. Memory companies knew they would have no friends in a downturn and saw no reason not to price aggressively during a shortage."}],[{"start":160.2,"text":"What’s different this time is that the industry is so much bigger. “Chipflation” is being tracked by world leaders. Last month, Senator Bernie Sanders accused Apple of “corporate greed” after the company increased prices on MacBooks and iPads. Apple in turn blamed memory chips, already one of the costlier components in electronic devices. Car companies such as General Motors have also blamed memory chips for increasing costs. "}],[{"start":184.89999999999998,"text":"The Trump administration, nervous about inflation amid the energy shock of the Iran war, is looking to bring prices down. One option is to buy more chips from China. For many years China was highly dependent on western companies for memory, but this has now changed. This week saw the initial public offering of Hefei-based CXMT, which manufactures DRam, one of the two main types of memory chips. It briefly became China’s most valuable company, a staggering rise for a company recently seen as second tier."}],[{"start":215.79999999999998,"text":"CXMT is the world’s fourth-largest producer of DRam, with plans to grow further. It has succeeded partly because it is allowed to buy some advanced equipment from western companies, though not the EUV lithography tools used for leading-edge DRam. Notably, the Trump administration last year planned to add CXMT to the Commerce Department’s “Entity List”, which would have tightened restrictions, before pulling back as part of a deal with China over tariffs and rare earths. "}],[{"start":242.35,"text":"Even so, the US government has discouraged western companies from using CXMT chips. Until recently, many steered clear. But with memory in severely short supply, they are now reassessing their options. Apple, for example, reportedly asked for the White House’s blessing to use CXMT chips. It is a short-sighted solution. "}],[{"start":262.7,"text":"For the moment, most of CXMT’s production is commodity DRam, not the ultra-complex high-bandwidth memory used to train AI systems. If the company breaks into the leading edge it could reshape the memory industry. "}],[{"start":277.59999999999997,"text":"Some buyers of memory chips see CXMT as the answer to chipflation. This seems unwise. But global peers worry that the company, which is roughly half owned by Chinese-government-linked entities, could build capacity without concern for profitability, making buyers dependent on Chinese supply. At stake is not only short-term prices for memory but an industry that has never been more strategic."}],[{"start":309.65,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785508619_9255.mp3"}