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

Commentary

Chip scarcity is forcing up memory prices and making the likes of Micron and SK Hynix astonishingly profitable. That's a guarantee of trouble, says Chris Bryant for Bloomberg Opinion.

12 Jul 2026 06:00AM

BERLIN: Micron Technology and its South Korean peers face an intractable problem. With data centres for artificial intelligence gobbling up supplies of their memory chips, there aren’t enough to go around.

This scarcity is forcing up memory prices and making Micron, SK Hynix and Samsung Electronics astonishingly profitable. But customers are unhappy, governments could intervene and shortages may open the door to Chinese rivals.

As recently as 2023 memory manufacturers were suffering huge losses as demand and selling prices collapsed. This is still a cyclical industry, but I think the bigger risk right now is this trio of companies being viewed as making too much money, rather than too little.

While their shares are well below this year’s record peak, their valuations have each surpassed US$1 trillion. In aggregate they’ll generate US$1.4 trillion of free cash flow in the next three years, if analyst estimates compiled by Bloomberg prove correct.

SURGING PROFITS

Micron’s fiscal 2026 net profit, estimated at about US$83 billion, would far exceed the company’s combined profits in the past three and half decades. Its 80 per cent operating margins are now the highest among large tech companies.

It’s the consequence of rampant hunger for dynamic random-access memory (DRAM), an indispensable component of computer servers and consumer electronics, as well as medical technology and cars. The big three control 90 per cent of the DRAM market and effectively all of high-bandwidth memory (HBM), a specialised form of DRAM needed for advanced AI chips.

Along with being far pricier, HBM consumes more wafer capacity, so conventional memory supplies are being squeezed. Building a new chip factory takes at least a couple of years, so shortages will likely persist until around 2028 even as the companies ramp up capital spending.

Micron’s average DRAM prices were almost four times higher in the recent March-to-May quarter than in the same period a year ago.

“The shortage we’re seeing in the market right now is unprecedented,” Bernstein analyst Mark Newman tells me. “Memory prices are just going up extremely quickly.”

TAKING ADVANTAGE OF CUSTOMERS?

Forcing customers to pay up for what was once considered a cheap commodity risks giving the impression that the memory companies are taking advantage. It’s not that simple. They were the ones financially pummelled in the past. Clients drove prices so low in 2023 that chipmakers couldn’t afford to add as much new capacity, Micron’s boss Sanjay Mehrotra said recently.

To its credit, Micron kept investing, even though this meant its debt ballooned just as interest rates spiked. So yes, it deserves financial success. The industry’s latest chips are a technical marvel; doing research and building new factories is eye-wateringly expensive.

And memory firms aren’t alone in cashing in on AI demand and driving up the cost of data centres. Companies who’ve cornered parts of the market, with high technical or financial barriers to competition and fat profit margins, are present throughout the AI supply chain - from Nvidia’s processors to ASML’s advanced lithography machines and Taiwan Semiconductor Manufacturing’s chip factories.

And yet, the big three need to tread carefully because their prices aren’t just stinging wealthy hyperscalers, for whom memory will soon account for more than a third of their vast capex bills.

Consumer-electronics companies are getting squeezed too, which means your next smartphone, PC or games console will be much more expensive. For some the situation is existential. After a surge in memory costs, action-camera maker GoPro has warned about its ability to continue as a going concern.

BOILING TENSIONS

SK Hynix, which raised tens of billions of dollars in a US share sale this week, warned in its prospectus about the danger of “government inquiries, civil litigations, increased regulatory oversight, new or modified conditions on government incentives or subsidies, or legislative or executive actions that could affect how we manufacture, price, allocate or distribute our products”.

Similarly, Micron’s recent US filings highlight the peril of long-term customer relationships becoming strained and “downstream” markets that rely on its products being disrupted, as well as possible legal disputes and greater “government and regulatory focus”.

They’re right to worry. Tensions are already boiling over. Several consumers and small businesses last month filed a putative class-action lawsuit in the US accusing the trio of coordinating to restrict DRAM supplies and inflate prices (the memory firms are expected to vigorously contest those claims). Apple, which has long enjoyed chunky profit margins, blames memory costs for its roughly 20 per cent price hike for iPads and Macs. Non-AI customers are lobbying US officials to ensure data centres don’t gobble up all the DRAM.

The memory firms’ response is to warn against interventions that distort pricing or capacity decisions. Their trade association suggests that Washington should offer tax relief to consumers and companies to offset higher prices. That sounds a little self-serving.

For now, the big three hold all the cards and their customers are increasingly having to sign multi-year contracts to secure allocations. Micron describes these deals as a “win-win”. That’s true, up to a point. In Micron’s case, they typically insulate large customers against further price hikes. Ford Motor and General Motors are among those who’ve signed up.

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.

Source: Bloomberg/zw(sk)