The Morning Download: No Quick Fix For Memory Chip Shortage

Good morning. Samsung and SK Hynix are investing more than $50o billion on the construction of new chip plants. It’s welcome news, but it will take years to bring new supply to market—eventually. For now, the forces leading companies like Apple to jack up prices will continue.

The initiative, announced by the South Korean government Monday, envisions the creation of four new memory chip-making plants in the southwest, diversifying from current production centers in the Seoul region, the Wall Street Journal reported.

“We must secure absolute competitiveness in advanced technologies including semiconductors and AI, and make sure the fruits of this growth are distributed evenly nationwide and felt by all citizens,” President Lee Jae Myung said in a televised address.

Not so fast. Shares of rival memory chip maker Micron rose this morning, given that “by the time the additional Korean manufacturing capacity is in operation, it could be shielded from the pricing effects,” Barron’s reported. Big chip manufacturing plants take years to build, Barron’s said, noting that Micron’s $100 billion project in New York state was announced in 2022 and isn’t expected to start production until 2030.

Chipmakers are used to boom-bust market cycles, and may have been wary until now that future demand won’t be sufficient to sustain massive new investments. That isn’t the view now, though. From the WSJ:

The chiefs of Samsung and SK Hynix said their existing investments wouldn’t be enough to meet demand. Four leading Silicon Valley hyperscalers—Microsoft, Meta Platforms, Amazon and Alphabet’s Google—together plan to spend as much as $670 billion this year on AI-related capital expenditures.

“A new manufacturing base is needed to meet the memory shortage that’s expected to continue,” said Chey Tae-won, chairman of SK Group, which controls SK Hynix.

Last week, Apple raised the prices of its Macs and iPads, following an earlier warning from CEO Tim Cook, who told the WSJ that soaring costs of memory and storage chips would force the company’s hand:

Chips for memory and storage are key components inside most computing devices, including smartphones, laptops, game consoles, medical equipment and even cars. But now AI servers are gobbling up rapidly increasing volumes of those chips, so even a company as rich and powerful as Apple is struggling to secure supply.

“Unfortunately, price increases are unavoidable,” he said. “We’re doing our best to mitigate the huge increases that are being passed to us, and we’ve been trying to shield our customers from the increases, but the situation has become unsustainable.”

Tech Leader Takeaway. Ultimately, the shortage of chips is a symptom of the underlying problem for the market, which is that demand for AI is soaring as AI infrastructure absorbs a remarkable amount of chip capacity, driving up prices. That dynamic affects pretty much all enterprises, where the use of AI continues to climb. As the Journal reported last month, “some enterprises have hit their annual budget in just three months or reported seeing their AI spending bills double or triple.” It may take years for supply and demand to come into balance.

• Some Chinese AI models have caught up to top U.S. systems like Anthropic's Mythos in some cybersecurity tasks, the WSJ reports. The advances coincide with U.S. government roadblocks to developers releasing models. On Friday, OpenAI said it was limiting access to its latest model, known as GPT-5.6, because of security concerns among administration officials.

• Google capped Meta's access to its Gemini AI models after Meta sought more computing capacity than Google could supply. The FT reports that Meta has been using Google's AI for some of its internal projects. Several other Google clients have also been affected by the restrictions.

• Consulting firms are scrambling to move away from hourly, labor-based billing toward fixed-fee and outcome-based models as AI threatens to replace much of their traditional human work, but the transition is proving slow and risky, the WSJLI's Mark Maurer reports. 

• Wayve is emerging as a surprising front-runner in the self-driving race against Tesla and Waymo by selling its "AI driver" as an off-the-shelf system to other automakers, the WSJ reports. The British AI startup has secured deals with Stellantis and Nissan and plans to launch a London robotaxi trial with Uber this summer ahead of a broader global rollout.

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Follow Isabelle Bousquette on LinkedIn, Instagram, X, and TikTok for more behind the scenes on her tech and AI coverage, and lately, her contributions to the WSJ Leadership Institute's new Executive Resilience series, where she's profiling America's top execs about their fitness and wellness habits.

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Steven Rosenbush is chief of the enterprise technology bureau at the WSJ Leadership Institute. He also has a column. You can follow him on LinkedIn.

Tom Loftus is the editor of The Morning Download. He suggests following Isabelle, Belle and Steve on their various social channels. But if you insist, here's his LinkedIn.