Guys, can we please stop inflating orders?
We are all aware that the semiconductor industry is highly volatile. But that’s not just because of the market itself; in fact, a substantial part is self-inflicted. Because, in times of shortages, companies panic and place inflated orders with multiple manufacturers or suppliers. We see the same thing happening again now with DDR4. Samsung, which captures about half of the DRAM market, has announced that it will wind down its DDR4 production by the end of 2025. This is causing a ripple effect that we have seen time and again.
Author: Alistair Jones, Global Head of Sales at Intelligent Memory
Once a shortage looms, prices start to go up, and companies start to stock up in the hope of securing the components they need - and doing so at a still moderate price. However, some don’t just order the amount they need. Because in times of allocation, manufacturers typically go back to their customers and assign them only a percentage of their order. And that’s when the bluffing starts.
The Bluffing Game
For example, Company A requires 50,000 components for the remainder of the year. To get those, it places two orders for 100,000 components with different distributors for two reasons: a) to “move up” in the order value and get more visibility and weight in the funnel, and b) to get close to its actual demand if it were to be assigned 25% of its order volume.
The trouble is that it's not only Company A that's doing this. Many others are placing bloated orders with multiple vendors or through various distributors. This has a devastating effect. It inflates the actual demand significantly. Manufacturers increase their output, and distributors and other market participants stock up their warehouses. However, this process takes time, as ramping up wafer manufacturing typically requires three to five months. During that time, some designs will transition to other types of DRAM. This brings down the actual demand even further, and so, once supply reaches a new balance, customers revise their forecasts and cancel their orders. Since it takes about the same time again to reduce the wafer output again, it's only a matter of time until we see an oversupply again.
This is precisely what we are seeing now with DDR4. This time, however, there is additional pressure from looming tariffs and the closing of the 90-day grace window.
Micron has reportedly increased prices for 8 Gb and 16 Gb DDR4 by 50% in June, and industry sources even indicate some quotes are jumping as high as 100%. You might call it money-making, but smaller manufacturers, such as Intelligent Memory, that still offer DDR4 products, are all dependent on wafer supply to meet this demand. Since there are only very few wafer manufacturers, wafer prices also increase, and we cannot absorb all these costs. That’s why a price increase is only natural, as smaller vendors don’t reach the volume sales of the big players. However, there’s also a second element in this price race.
Two can play the game
Steep price increases are announced for a reason other than mere margin-making. They are also intended to level orders at a realistic volume. When prices go up, buyers become more cautious with their orders and less likely to puff up numbers.
But this is a vicious cycle where everyone loses. Customers pay higher prices, manufacturers face oversupply, and prices are on the brink of unprofitability.
So, can we please stop this? Wouldn’t you much rather buy products at realistic prices from a reliable partner than having to gamble if you have the highest bid, or whether you “inflated” your orders enough to end up with just the amount you need – and potentially face legal friction over unmet contracts? At Intelligent Memory, we know what we prefer.
Intelligent Memory has been developing memory products for demanding industrial applications since 1991 (as Pacific Force Technology Limited until 2013). As a German-run, memory semiconductor, the company's product portfolio consists of DRAM components and DRAM modules, as well as managed NAND Flash.