AI Boom Triggers Memory Chip Shortage, Threatening Consumer Electronics and Automotive Industries

AI is contributing to a memory chip shortage that could hit phones and cars

A SK Hynix Inc. 12-layer HBM3E memory chip displayed at the Semiconductor Exhibition in Seoul, South Korea. Chipmakers and analysts are warning of a memory chip shortage that could hit the consumer electronics and automotive industries next year, as companies prioritize massive demand from the artificial intelligence boom. In an earnings call on Friday, the CEO of Semiconductor Manufacturing International Corp, China's largest contract chipmaker, reportedly said that fears of a memory chip shortage were prompting its customers to hold back orders for other types of chips used in their products. "People don't dare place too many orders for the first quarter next year," said Zhao Haijun, SMIC's co-CEO, during an earnings call. "Because no one knows how many memory (chips) will actually be available -- how many phones, cars, or other products it can support." Analysts say these supply constraint concerns come as chip manufacturers focus on advanced memory chips used in artificial intelligence computing, with less focus on production needed for consumer products. "The AI build-out is absolutely eating up a lot of the available chip supply, and 2026 looks to be far bigger than this year in terms of overall demand," Dan Nystedt, research analyst at TriOrient, told CNBC. AI servers primarily run on processors from chip designers like Nvidia. These AI processors heavily rely on a type of memory known as High-Bandwidth Memory or HBM, which has proven extremely lucrative for memory companies like SK Hynix and Micron to pursue. Memory suppliers have been chasing as much of this AI demand as possible thanks to typically high margins, Nysdedt said, noting that AI server companies are willing to pay top dollar for premium chips. "It could be very bad for PCs, laptops, consumer electronics and automotive, which depend on cheap memory chips," he said. Perhaps a bigger issue, however, is that the memory industry suffered some severe down turns in 2023 and part of 2024, leading to under-investment in the industry. "They're building new capacity now, but it will take time to get running."

Why China's largest chipmaker is worried about near future of smartphones, laptops and gadgets

China's largest chipmaker, SMIC, warns of a potential memory chip shortage. This is causing customers to delay orders for other components. Chipmakers are prioritizing high-margin AI memory, impacting supply for phones, cars, and PCs. Prices are rising, and consumers may face higher costs for electronics next year. The CEO of China's largest contract chipmaker, Semiconductor Manufacturing International Corp (SMIC), has issued a warning. During a recent earnings call, SMIC chief Zhao Haijun said that concerns over a looming memory chip shortage are leading customers to scale back orders for other types of chips used in their products. SMIC, China's largest contract chipmaker, issued the warning as more chipmakers and analysts caution that a global memory chip shortage could affect consumer electronics and automotive companies next year. According to CNBC, manufacturers are increasingly shifting production toward high-margin components that support the surge in artificial intelligence. "Everyone is hesitant to place too many orders or ship too much in the first quarter of next year because they don't know how many mobile phones, cars, or other products [the memory chip industry] can supply," Zhao said, according to a Google translation cited in the report. Analysts told CNBC that the bottleneck arises because chipmakers are prioritizing advanced memory -- particularly High-Bandwidth Memory (HBM) -- used in AI computing. AI servers, many of which run on Nvidia processors, rely heavily on HBM, making it a lucrative area of focus for suppliers like SK Hynix and Micron. "The AI build-out is absolutely eating up a lot of the available chip supply, and 2026 looks to be far bigger than this year in terms of overall demand," Dan Nystedt, vice president of research at TriOrient, told CNBC. AI customers are willing to pay steep prices for premium memory, he said, leaving fewer resources for cheaper chips used in PCs, smartphones, and vehicles. "It could be very bad for PCs, laptops, consumer electronics and automotive, which depend on cheap memory chips." "With memory prices rising and availability shrinking, concerns about production bottlenecks are gaining traction," M.S. Hwang, research director at Counterpoint Research, told CNBC. He said supply tightness was already affecting low-end smartphones and set-top boxes and warned that the risk "could broaden." China, he added, is "feeling the pinch more acutely" due to its reliance on low-cost devices, though the issue is global. Consumers may ultimately bear the cost. Market research firm TrendForce said that the memory sector has entered a "robust upward pricing cycle," which could force brands to raise retail prices for smartphones, notebooks, and other consumer devices. (You can now subscribe to our Economic Times WhatsApp channel)