Costly memory: AI-fuelled chip boom sends prices soaring, Singapore retailers reeling

Vendors from Taiwan have informed the retailers that the price hikes will likely continue through 2027, maybe even trickling into 2028, due to the global demand for chips and the resulting shortage.

Associate Professor Goh Puay Guan, from the analytics and operations department of the National University of Singapore’s Business School, said that higher end AI memory chips have higher profit margins.

As such, manufacturing resources are being diverted to make these, instead of the RAM type that is needed for smartphones and consumer electronics, he explained.

“It takes time and a lot of capital investment to build up semiconductor manufacturing capacity,” noted Assoc Prof Goh.

“With limited manufacturing capacity, it would make more sense for manufacturers to produce higher end products which are more profitable.”

IMPACT ON RETAILERS

The rapid rise in RAM prices has brought significant losses for retailers, along with shifts in customer behaviour.

Mr Ahmad shared that Computer Safari’s earnings have dropped between 50 and 60 per cent in the past month.

This is due to a drop in sales as customers — including regulars — hold off upgrading their devices if it is not urgent, said Mr Ahmad.

In the past when each RAM unit was about S$60 each, Mr Ahmad said his firm would sometimes provide free upgrades to customers.

“Then the customers will be happy. But right now, at S$160, of course we cannot afford as well,” he said.

Mr Abdul shared that Dynacore’s business has seen losses of around 20 per cent. RAM sales contribute 15 to 20 per cent of its sales each month.

His customers — which comprises both retail consumers and also corporate clients — still buy the RAM chips as they need to use their computers, but cut down on upgrading other aspects of their machines.

“They have to spend money on the RAM, no choice. Because of the RAM (price) increase, they cut down on the other parts, maybe like the graphic card or CPU,” he said.

The Bizgram manager shared that the high prices have driven his customers to buy lower capacity RAM units instead.

“I think the people who used to buy the higher capacity of RAM, they’ve come down to lower capacity, like in the old times,” he said. 

He explained that customers used to buy 8GB to 16GB RAM modules, but started buying higher capacity ones like 64GB and 128GB when the parts became cheaper.

Some customers use their devices for work and cannot wait for the prices to drop as they really need it urgently, he said.

Those customers will run their devices on lower capacity parts while monitoring the prices, and upgrade when the prices drop in future, he said.

The Bizgram manager said there are also spillover effects on other aspects of business too.

“There’s an impact on graphics cards, for instance, because people have budgets. They will not invest on that (graphics cards) because they need to invest on RAM. Both are balanced,” he said.

Packaged computers from brands like HP and Dell will also become more expensive due to the RAM modules within, he added.

Assoc Prof Goh noted that the rising prices could bump up the prices of other products too.

“RAM chips make up between 10 to 20 per cent of the price of a smartphone. With the increase in RAM prices, this would also have an impact on phone and electronics prices,” he said.

RESPONDING TO PRICE HIKES

Despite the price pressures, retailers told CNA there is ultimately no real way to pivot away from RAM, as it remains essential for computers to function.

Mr Abdul said his shop is staying calm and adopting a wait-and-see approach for now, even as it has almost fully sold out its existing stock.

“We sell at around S$400, because it’s a mix of the older stock and new purchases, so we do an average and are selling at that average price,” he said

In the past, retailers may order and stockpile an item if it is expected to face a shortage. However, they are hesitant in the current pricing landscape.

“Now we are so scared that if the price suddenly drops, we have to suffer losses on our side,” said Mr Abdul.

Echoing his sentiments is Mr Ahmad, who shared that his firm only procures the necessary units upon customers’ orders.

“Now, buying power is difficult. We can’t buy so expensive because we do not know when it (prices) could suddenly go down again, and then we will have a loss,” he said.

Mr Ahmad said he intends to monitor if the prices fall in the months ahead, and will start to hold inventory again if they return to a more acceptable level.

Previously when the prices were more regular, his firm would stock around 10 to 20 units for each RAM model, he added.

At Bizgram, the manager said his shop will start stocking up on lower capacity RAM, as demand for the higher capacity units falls.

“We will still keep up bringing in the stock and all, because if you stop supply, then you can’t sell right?” he said.

Industries that use RAM are also adapting to the pricing developments with adjustments to their business plans, said Assoc Prof Goh.

For instance, the smartphone industry is adapting by using lower end products or slowing their new product introductions, he said.