Global memory chip shortages continue to weigh on supply chains

We expect the ongoing memory chip shortage to be particularly harmful for the purchasers of traditional memory chips such as electronics, electrical machinery, and automobile manufacturers. The IT services sector will also be hit, but strong demand for AI and higher profit margins will partly shield them.

The current memory chip shortage is caused by insatiable AI-related demand for cutting-edge memory chips. Firms are shifting production capacity towards AI chips with higher margins, leaving less capacity for traditional chips used for PCs, smartphones, and other electronics. We think the existing supply-demand imbalance will continue in the next few years as long as the AI investment boom goes on.

Within the electronics sector, the polarisation between AI and non-AI players will likely intensify. Memory chipmakers will receive a substantial benefit from soaring prices. At the same time, downstream manufacturers will face rising input costs.

Moreover, lower production of final product due to higher input costs will reduce demand for other electronic components that go into production. These include displays, sensors, lenses, and batteries—further driving the wedge between AI and non-AI electronic manufacturers.