Commentary: Micron’s massive profits are a guarantee of trouble

But agreements like these effectively lock in years of bumper sales and hefty profit margins for memory firms. Customers without long-term contracts may “need to procure from a smaller pool of uncommitted supply, potentially at higher and more volatile prices”, notes Morgan Stanley.

Micron intends to invest more than US$250 billion in new US factories and technology development through 2035, it disclosed on Thursday (Jul 9). That’s about US$50 billion more than the figure it talked about previously. It’s investing up to US$3 billion to support the US semiconductor supply chain. Plus, it has committed US$250 million to the Trump Accounts initiative to help children and families build wealth from an early age. This is all laudable, and for now the US president is full of praise.

At the same time, though, Micron is poised to receive US$6.4 billion of government subsidies to help cover the cost of its factories, along with a 35 per cent investment tax credit. Those grants, most of which were approved by the Biden Administration, are meant to offset the higher costs of building plants in the US than in Asia. I wonder whether it needs taxpayer assistance given it might make more than US$175 billion of net profit next fiscal year.

CHIP GEOPOLITICS

Meanwhile, traditional memory chip buyers aren’t sitting on their hands. Apple wants to counter the shortages by acquiring from Chinese companies, albeit only for devices sold in China. The trouble is that the sellers, ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies, are blacklisted by the Pentagon, so the iPhone maker wants Washington’s blessing.

China’s memory tech is, anyway, way behind America’s and South Korea’s, and CXMT’s prices have soared, too, recently.

Policy makers may want to look beyond the current scarcity when considering chip geopolitics. The Western incumbents worry that Chinese capacity could eventually drive prices back down to unsustainable levels, as has happened in countless other industries. The trajectory of US policy is “toward, not away from, constraining Chinese memory scaling”, notes Morgan Stanley.

Governments lack a silver bullet but I remain hopeful that market forces – such as innovations that allow data centres to use less memory – will prove more effective. Still, when an oligopoly makes unprecedented profits at everyone else’s expense, strife is all but guaranteed.