Micro Star International Chairman Joseph Hsu warns rising memory prices and lack of supply visibility threaten PC market growth and hardware affordability
The willingness of global consumers to accept higher personal computer retail prices will become clear during the third quarter. In a recent executive briefing Micro Star International Chairman Joseph Hsu indicated that severe memory price hikes have significantly disrupted the do it yourself hardware market during the second and third quarters. This pricing pressure has caused consumer hesitation while making commercial quoting highly difficult for manufacturers. Memory suppliers are currently operating with low visibility providing allocation volumes on a strict 1 month cycle which limits the long term planning flexibility of brand manufacturers.
Memory price hikes, together with graphic chip supply shortages at the beginning of the year, affected PC shipments by around 30%, this, paradoxically, lessened the competitive drive for price cuts amongst PC brands. Therefore overall shipment volumes did decrease, but average unit selling prices went up, enabling manufacturers to post healthy year on year revenues and profit margins. However the duration of this demand is uncertain now that the initial stock piling is coming to a close and higher priced products will be appearing in retail.
Supply side issues continue to pose a severe threat to profitability according to the analysis from Hsu. Since memory manufacturers currently can only promise volumes on a one month basis with next month prices availability being unknown it makes sales teams work with constantly adjusted quotes and clients have long evaluation periods before committing to a purchase. The baseline costs for 16GB RAM went from approx $40 per unit up to $200 in the open market, for example and that is just one of many component costs.
In the case of the server market the large quantity of memory modules needed means that when specialized module prices hike $1000 $2000 per unit, the total price of a server system increases by tens of thousands of dollars at a time which makes it necessary for businesses to reassess their annual budgets, hence MSI is facing protracted negotiations with corporate customers over order terms and pricing.
Inflation combined with geopolitical concerns is forecast to put the DIY hardware market down more than 20% this year, while the entire consumer desktop and laptop markets are expected to decrease by between 10 20% themselves. But revenue and margins were boosted throughout this year by rising unit selling prices and strict discipline on pricing and margins among competing brands. The component shortages are beginning to ease, with other sources of bottlenecks now opening up.
However while the price increases for memory continue, the shortage in CPU supplies will soon likely be reduced, especially after Advanced Micro Devices shifted their focus back from high margin server chips towards desktop products at the beginning of second quarter, with obvious improvement in its second quarter desktop shipments. And also for third quarter, Intel is anticipated to increase their supply of desktop CPUs so shortages of components for the crucial fourth quarter selling season will be significantly limited.
Source: udn
