Musk's criticism of Samsung, SK's memory chip pricing runs counter to market logic: expert

Tesla CEO Elon Musk’s latest criticism of Samsung Electronics and SK hynix over their memory chip pricing defies market realities, as any chipmaker that undercuts prevailing prices risks selling out immediately and leaving other customers without supplies, a prominent U.S. chip analyst said.

Jim Handy, founder and general director of semiconductor research firm Objective Analysis, challenged Musk's recent description of the Korean chipmakers' prices as “extortionate,” compared with those of their U.S. rival Micron. The chip expert underscored that memory prices are determined by market forces rather than individual suppliers.

“Memory makers do not set their parts’ pricing — the market determines the pricing,” Handy said in a written interview with The Korea Times, Sunday. “In that light, it is hard to understand Musk’s comment.”

Musk is looking to manufacture chips in-house through his Terafab project, with soaring memory prices an increasingly pressing concern for his ambitions. He posted on X on Tuesday (local time), “Micron has been reasonable regarding future memory prices, while others have been extortionate, which is something today's customers will not forget.”

He did not mention who the “others” are, but Samsung Electronics and SK hynix, along with Micron, are the top three memory chipmakers globally. Given his influence in the technology industry, his public criticism carries significant weight and can reverberate across the semiconductor market.

Handy argued that if one memory supplier priced its products below competitors, it would quickly sell out its inventory to the first buyers, leaving it without enough chips to fulfill orders from other customers.

“All DRAM makers want to keep their customers happy, but if one of them were to charge less than the others, they would immediately sell out to the first bidder, and would have no product to ship to their other customers,” he said.

The remarks reflect on the supply constraints underpinning the current memory upcycle, even as the rapid expansion of artificial intelligence (AI) infrastructure raises questions about how long elevated prices and profit margins can last.

Handy said the global DRAM and NAND flash markets are all being driven by severe supply shortages stemming from unexpectedly rapid growth in AI spending.

Even if manufacturers accelerate capacity expansion, he does not expect supply to catch up with demand before 2029, assuming AI investment continues to grow as projected.

However, Hardy expects the booming memory chip market will start losing steam when AI spending comes to sudden slowdown.

“Given that hyperscale datacenters are not seeing a return on their capital spending, it is likely that this spending will slow, but it is impossible to know when that might happen,” Handy said.

China risk

The longer-term competitive threat, however, may come from China, where domestic memory manufacturers are expanding production with government backing and pursuing technologies that could narrow the gap with established suppliers, according to Handy.

ChangXin Memory Technologies (CXMT), which produces DRAM, and Yangtze Memory Technologies Co. (YMTC), a NAND flash maker, are already affecting the competitive landscape across the global memory industry.

Both are part of Beijing’s drive to reduce dependence on foreign semiconductor suppliers, with government direction and subsidies supporting their expansion.

CXMT's aggressive entry into the DDR4 market in 2023 was significant enough to prompt the three largest DRAM makers to abandon the segment, Handy said, demonstrating that Chinese manufacturers can disrupt established market dynamics even before matching the technological capabilities of industry leaders.

The threat could extend to high-bandwidth memory (HBM), a critical component in AI accelerators. CXMT has said it intends to develop HBM, although it has yet to bring a product to market.

Handy pointed to the company's recent announcement of its “4F square” DRAM cell design, which could help it circumvent restrictions stemming from China's limited access to extreme ultraviolet (EUV) lithography equipment.

The U.S. has blocked the export of ASML's EUV systems to China since 2019, making it impossible for Chinese buyers to purchase the machine used to improve the density and manufacturing efficiency of advanced DRAM used in HBM.

But the new design could offer CXMT a way to produce sufficiently compact DRAM without relying on EUV tools, Handy said, potentially opening another front in China's challenge to Korean memory leaders.

“Both CXMT and YMTC are working hard to increase their volumes,” he said, warning that their impact on Samsung and SK hynix would grow as their production expands.