According to Micron, the global memory chip shortages are not solely the result of the explosive growth of AI. CEO Sanjay Mehrotra (photo) argues that years of price pressure from customers prevented the industry from investing enough, causing production capacity to lag behind when demand for AI memory rose unexpectedly quickly.
According to Mehrotra, major customers forced prices lower and lower for years. When the market collapsed in 2023, prices for memory chips dropped to about one-third of their previous level. As a result, many manufacturers fell into the red and lacked the financial resources to build new factories and production lines in a timely manner.
In an interview with CNBC, the Micron CEO emphasized that companies simply no longer had the funds to invest at the same pace. According to him, this set the entire memory sector back, just as AI workloads began to sharply increase demand for high-end memory.
Micron saw its gross margin drop to -7.3 percent in fiscal year 2023. The company itself also scaled back its investments. Capital expenditures fell from $12.1 billion to $7.7 billion, though according to Mehrotra, Micron continued to invest in new technology and production capacity.
Shortages will persist for years
Since last year, demand for memory chips has surged, primarily driven by AI servers that require large amounts of HBM and DRAM memory. According to Mehrotra, virtually no one—including Micron’s customers—was able to accurately predict the scale of that demand in advance.
He therefore expects the shortage in the memory market to persist for years to come. Building new chip factories takes several years, and the production of the latest generations of memory has also become considerably more complex than before. As a result, he believes it will take until well past 2027 before supply and demand are better balanced again.
To expand production, Micron is investing approximately $200 billion in manufacturing capacity and research. This includes new factories in Boise, Idaho, and Syracuse, New York. The first chips from the Boise factory are expected to roll off the assembly line in the middle of next year, after which production will be gradually scaled up.
Higher prices reach consumers
The ongoing shortage is now also affecting consumers. Last week, Apple raised the prices of various Mac and iPad models. CEO Tim Cook explained that the company could no longer absorb the sharp rise in memory and storage costs.
For Micron, however, the market shift is proving beneficial. Strong AI demand has significantly improved the company’s financial performance, and the chipmaker is among this year’s biggest stock market winners. According to Mehrotra, this is partly the result of the decision to continue investing even during difficult years, despite pressure on margins.