This agreement puts a floor on the price that Micron can sell their chips at, and a ceiling on the price that tech companies buy them.
Micron wants the floor, so they can invest in more fab capacity without going bankrupt if there's a memory glut.
Tech companies want a ceiling so they can keep selling their products even if there's a shortage.
If there's a glut, the tech companies will just resell these chips at a loss, or take a bath on their $22 Billion of deposits. It doesn't "lock in high prices" for consumers, just the producers.
I agree. But Micron says it wants to end the boom-bust cyles in the memory chip business for good. It won't work.
A higher price floor for longer creates an incentive for competitors to bring more capacity online. The eventual supply glut will be even bigger.
The cyclicality of the semiconductor business (especially for simpler chips) is a result of the fact that inventory can build up. That hasn't changed and it never will.
Comments
Isn't this the market working as intended?
This agreement puts a floor on the price that Micron can sell their chips at, and a ceiling on the price that tech companies buy them.
Micron wants the floor, so they can invest in more fab capacity without going bankrupt if there's a memory glut.
Tech companies want a ceiling so they can keep selling their products even if there's a shortage.
If there's a glut, the tech companies will just resell these chips at a loss, or take a bath on their $22 Billion of deposits. It doesn't "lock in high prices" for consumers, just the producers.
I agree. But Micron says it wants to end the boom-bust cyles in the memory chip business for good. It won't work.
A higher price floor for longer creates an incentive for competitors to bring more capacity online. The eventual supply glut will be even bigger.
The cyclicality of the semiconductor business (especially for simpler chips) is a result of the fact that inventory can build up. That hasn't changed and it never will.