The new iPhone price increase is just the beginning: global flash memory supply shortage is the internal cause

The price increase of iPhone is not surprising, but the issues it reflects are worth pondering.

At the beginning of 2017, Meizu announced that the price of its Note5 16GB and 32GB versions would increase by 100 yuan. The reason for the price increase was the increase in BOM costs. (BOM in Chinese means bill of materials. Generally speaking, BOM is the integration of the product structure, process flow, etc. of a certain product. Through the BOM list, you can clearly know the cost price of the main accessories of a mobile phone. In other industries, BOM prices are rarely announced to the public.) Subsequently, Lenovo, Xiaomi, Meizu, LeTV, and Gionee have announced price adjustments for their products on sale, with product prices increased by about 100 yuan.

There were signs of rising mobile phone prices a long time ago, and the problem of tight flash memory supply had already emerged in 2016.

Since last year, the prices of memory and SSD have been rising. The price of 8GB DDR4 memory has risen from 200 yuan to more than 500 yuan. At first, major Flash manufacturers gave priority to supplying flash memory to mobile phones, and the mobile phone industry was not affected. However, in 2017, due to the terrible consumption of flash memory by mobile phones, Flash manufacturers had to raise prices to reduce supply chain pressure.

Mr. Pan Jiancheng, Chairman of Phison Electronics, once mentioned that all electronic products rely on flash memory. Therefore, the shortage of flash memory supply affects not only the mobile phone and PC industries, but also the automotive, hospital, education, home appliances, etc.

Flash shortage problem will not be solved within one year

According to IDC data, the data generated from 2013 to 2020 will increase 10 times to 44ZB, and will generate 160ZB of data by 2025, but the flash memory capacity has not kept up with the pace of data growth in the past two years. In the second half of 2017, the new iPhone alone will consume all the flash memory particles for the whole year, and there will be a 30% supply gap. It is conceivable how difficult it is for other mobile phone brands and the SSD memory industry to purchase Flash chips.

As we all know, the problem of Flash shortage is caused by the difficulty of 3D NAND technology being higher than expected when the original manufacturer upgraded the flash memory particles, and the production capacity cannot meet the market demand. Therefore, the price of NAND Flash has seen the largest and longest price increase in history. According to the quotation of China's flash memory market, the price of NAND Flash per GB has risen from US$0.12 in 2016 to US$0.3. The price of mainstream eMMC has risen by more than 60%, and the price of SSD has exceeded 80%. The price increase is rare in the hardware industry.

The problem of Flash shortage may not be solved in the short term. Although the original manufacturers have fully popularized 3D NAND, the problem is also obvious: 3D NAND technology is more complicated, and the production of large-capacity flash memory particles requires longer working hours than 2D. In addition, several major original manufacturers have to increase production capacity at the same time and face the problem of insufficient wafer supply.

How long will the storage shortage last? Let's take a look at the development of original 3D NAND as follows:

Samsung, Toshiba/WD, Micron/Intel are all mass-producing 64-layer 3D NAND, and SK Hynix is ​​mass-producing 72-layer 3D NAND. Samsung's 64-layer 3D NAND has been used in its own products, and the 64-layer 3D NAND will be supplied to customers in Q4; Toshiba's 64-layer 256Gbit has been mass-produced; Micron's 64-layer B16A (256Gbit) has been mass-produced.

Although 3D NAND production capacity has increased recently, it is still too small compared to the estimated 1.5 billion smartphones, not to mention that users now prefer phones with 128GB or more capacity. In addition, original flash memory will be supplied to the server-level SSD market first. Based on the above factors, the author believes that the tight supply of smartphone flash memory will continue until the end of the year, while the SSD and memory markets will continue until mid-2018 or even longer.

Consumers face more than just price increases

The global supply of flash memory is tight, and the problems it brings are more than just price increases.

Careful readers may have noticed a problem. Although these manufacturers are complaining about the tight supply chain every day, SSD and memory products have never been out of stock. Previously, AMD graphics cards were out of stock due to mining, and except for some individual sellers on Xianyu, players had almost no channels to buy graphics cards.

So, apart from the major original manufacturers and regular downstream manufacturers, where do the domestic counterfeit SSDs and memory come from?

The answer is that due to the severe shortage of flash memory supply, flash memory particles have become a strange "circular" chain.

We know that the original manufacturer will give priority to supplying flash memory particles to the server market, followed by smartphones, and then SSD and memory markets. The server market is huge, and companies such as Intel, Amazon, Alibaba Cloud, and Tencent Cloud will eliminate a large number of SSDs that have reached the end of their read and write lifespan but are not damaged every year. Their method of destruction is also very simple, that is, to punch a hole in the SSD main control, while the flash memory particles are intact.

After domestic counterfeit SSD and memory manufacturers recycle this kind of "foreign garbage", they remove the flash memory particles, grind off the LOGO, and then reprint a new LOGO. At this point, the scrapped SSD flash memory particles become a new product.

If the recycled "foreign garbage" is of too poor quality, they will not throw it away, but make it into USB flash drive products.

Let me give you an example so that you can understand the secret: According to the quotation of China's flash memory market, we can find that the quotation of USB 3.0 16GB flash memory is about RMB 41.5, while the average price of low-quality 16GB USB flash drives sold on the market is only RMB 30. I believe everyone will understand the trick without me telling you.

Currently, this phenomenon only occurs in the PC industry, but if the flash memory supply problem continues to ferment and some smartphone manufacturers insist on engaging in price wars, it is only a matter of time before this industry is affected.

Whether it is a mobile phone, PC, or USB flash drive, once consumers purchase such products, losing money is a small matter, but losing important data and being unable to recover it is very serious.

Where should downstream manufacturers go?

The price hike of flash memory has made original manufacturers earn a lot of money, and also made some copycat manufacturers earn a lot of money, but the secondary manufacturers caught in the middle are suffering.

The original manufacturer has strong technology and R&D capabilities, and although the product price is slightly higher, consumers are happy to accept it; the product cost of the copycat manufacturer is extremely low, and the selling price is also very low. If you don't know the SSD market, you can easily be fooled into buying such products. However, the selling price of some secondary manufacturers' products is restricted by the original manufacturer. The cost is high, but the market demand is bleak, so they have to sell products below cost (i.e., price inversion). They can only watch the copycat manufacturers sell inferior products regardless of the impact on the industry and make a lot of money. It has to be said that it is a tragedy in the SSD market.

From the analysis of the four aspects of industry-level design capabilities, core chip hardware R&D capabilities, operating system software technical strength, and assembly and sales capabilities, downstream storage manufacturers, especially domestic storage manufacturers, are least lacking in assembly and sales capabilities, but they also have almost no core software and hardware R&D capabilities.

Only a few product lines have begun to try to adopt self-developed memory chips. Even with the domestic Tsinghua Unigroup, which has taken the lead in investing a total of 160 billion yuan, Yangtze Memory has only achieved a change from "zero to one".

Therefore, if the problem of technological monopoly is not completely resolved, downstream manufacturers will still be controlled by others, and it will be difficult to guarantee even revenue, let alone talk about "technological innovation."

Finally, in terms of storage software, downstream manufacturers also need to be more attentive. How to improve the control over hardware is the top priority. Why are the original flash memory chips faster and more stable when the flash memory chips are the same? How to differentiate them from the disassembled chips of copycat manufacturers? This is where downstream manufacturers need to work hard. Of course, this software is not designed, but tested through market trials and tribulations, which needs to withstand the long-term practice of consumer users.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.