Data & Dimensions | Ep. 10 - DRAMageddon Has Gaming Under Attack

View Full Transcript

Neil Barbour   00:00:03

Welcome to Data and Dimensions, a podcast at the intersection of Entertainment, Industry and interactivity. I'm Neil Barbour, an analyst with S&P Global Market Intelligence Kagan. And with me today is Chris Rogers, head of supply chain research at S&P Global Market Intelligence, to discuss DRAMageddon and its impact on gaming hardware. Chris, welcome to the show.

Chris Rogers   00:00:23

Thanks for having me, Neil.

Neil Barbour   00:00:24

So put a little frame on it, basically, the shortage of memory modules in computing devices, specifically DRAM or dynamic random access memory. All the data centers being built right now to power artificial intelligence are kind of monopolizing these components, and that means there are fewer memory modules for consumer goods like laptops, mobile phones. And yes, the one we care about, gaming consoles and gaming PCs. And that ends up driving the prices higher for those goods, potentially creating some shortages, which has the potential to really disrupt growth in the gaming market. So we have an expert on supply chain. Chris, can you tell us when you first started seeing these shortages emerge in your data sets? And what did that look like?

Chris Rogers   00:01:02

I'd love to say we were sat there when ChatGPT came out and went, yes, this is a problem for the future. But I think like most people, we probably underestimated how quickly the challenge would emerge. When we look at the data, the key data points we track are the producer prices for semiconductors out of South Korea and also South Korean export prices themselves. So in our data, we can see the export price per unit. And that started picking up in early 2024. didn't necessarily go parabolic at that point. It was steadily increasing. And in fact, there was a dip in early 2025, which to a certain extent is seasonality. So you get as new devices are released, you see a run-up in demand for DRAM. But then it really started to pick up. And I think there was a couple of reasons for that. Firstly, obviously, a lot more purchases, particularly of NVIDIA's Hopper system. And then as you move to the newer system to Blackwell, there's even more memory being used. And of course, because that's in a different structure, high-bandwidth memory, that then leads the memory makers to start reallocating capacity. And so the surge that we've seen in prices since the middle of 2025, which I think was when it really started to become something that was discussed a lot more by the device makers, that's where we really started to see the prices go up. And in fact, at this stage, both the producer price numbers and the export price numbers are the highest that they've ever been. And bear in mind, this is an industry that's really been very, very cyclical in the past. So it's unusual to see this kind of secular upturn rather than just a cyclical change.

Neil Barbour   00:02:49

Yes. It's interesting when I go to conferences and I see the Blackwell chipset put into a rack and then they sort of visualize how many racks they would need to power a data center. It's just staggering how much compute is going into there. So you can really see how that would ripple out to the markets. Maybe I have tunnel vision, but it seems like DRAM shortages have been most pronounced in video games, which presumably is downstream of the volume of modules needed for graphics processing. Is that what you're seeing as well? Or are other segments suffering to the same degree?

Chris Rogers   00:03:18

I think certainly, video games have been -- or video game consoles and computing systems have been at the forefront. Again, they are, as you say, the more complex systems. And it's kind of ironic, right, because the AI accelerators like Hopper, Blackwell and now Rubin have all grown out of video game graphics processing units. So what goes around comes around in that regard. But we are seeing other sectors go through similar issues already. If we take the example of smartphones, we saw that when Samsung Electronics released their S26 series a couple of months ago, the price of a memory upgrade, so instead of getting a 32-gigabyte phone, you get a 64-gigabyte phone, the price per gigabyte upgrade increased by -- depending on the phone by around 1/4 to 2/3. So whilst the overall cost of these phones increases steadily over time anyway, the real kind of signal there is how much each extra gigabyte of memory is costing you. There's already been a 20% increase on the S25 a year earlier. So to your question earlier about when did this start going up, that was your kind of early 2025. We saw something similar from Apple, the 17 Series iPhone. There's actually a doubling in the price per gigabit of memory upgrade. Google haven't released a new Pixel yet, but in late 2025, they'd increased theirs by 16% on the Pixel 9 versus the Pixel 8. So I think other sectors are working through it. But of course, all of these different products are running on very different schedules in terms of their release cycles. And so their exposure to the pricing varies as well. I think another element related to that is around purchasing on spot versus purchasing on contract. And we're seeing differentiation between different sectors and within sectors between different companies depending on whether they're making those longer-term purchases. For the mobile phone makers, they can make those slightly longer-term purchases because they've got that very regular annual cycle. So they're there every year, whereas I think in the gaming sector, there's kind of a longer product release cycle typically. And as a consequence of which that can affect the ability of the gaming sector to buy memory long term.

Neil Barbour   00:05:48

Yes. And definitely, as if higher-end mobile phones become more expensive or it becomes harder to come by a mobile phone that has a ton of storage or a ton of RAM, then that also cuts down into the addressable market for gaming on phones. So that also can be a knock-on on the game market as well. Obviously, console prices have been going up. We've seen Sony and Microsoft both push pretty steep price increases to their older consoles, which have been on shelves for 5 or 6 years now. Do you also see computer gaming hardware, sort of the GPU add-in boards you put into a PC or perhaps even a laptop? Do you see that affected in your data as well?

Chris Rogers   00:06:28

Yes, absolutely. I think the laptop makers themselves, the gaming laptop makers more broadly have been talking about price increases, particularly at the less profitable end of the market where they really can't absorb the higher cost -- and remember, they're not just facing higher costs from memory. There's all kinds of other factors knocking around like transportation costs and tariffs and all that kind of stuff that they have to deal with. For the higher-end gaming machines, we're also -- sometimes historically for higher-end machines because the profitability is higher, the firms are sometimes willing to absorb a little bit of the higher cost. But this time, it's being passed straight through. Now I think firms have been reluctant to move too aggressively on pricing, particularly in the U.S. because of all of these other uncertainties knocking around, particularly with regards to the tariffs, as I already mentioned. I think it's also not just in the traditional laptop and PC and plug-in card market. We're also seeing it in VR. So we saw that Meta increased the price of the Quest 3 by around 20%, and they specifically cited memory for that. Obviously, you don't have a lot of choices with a Quest as to whether you want to use third-party DRAM or not. So yes, I think it's really being seen across the board. And as we often see in a lot of these kind of supply chain, I wouldn't call it a shock because this is playing out over some period. The longer that we see a disruption occur, the longer it will then take to normalize afterwards. And we're really now effectively 18 months into this kind of DRAM price uplift cycle. So it's going to take a while before it filters through all of the other gaming segments as well.

Neil Barbour   00:08:21

Right. And particularly Quest sort of being an extension of the gaming market. It's kind of a mobile gaming platform that you stretch your head. So maybe not so surprising that it's also been a knock-on, but as VR has tried to mount a comeback over the past year, perhaps with -- or let's say, 24 months, with the Quest refresh and Apple Vision Pro and Samsung Odyssey, there was a sense that maybe those prices would come down to a more affordable price point for the average consumer or a mid-market gamer, but it does appear that that's further out of reach than ever at this point.

Chris Rogers   00:08:58

I think it's interesting with the VR segment is how it struggled to find a use case. So speaking from personal experience, and this is kind of double up supply chain nerdery, one of the things we try and do with supply chain research is visualize how corporate relationships interlink. So how Microsoft or Sony connect to their suppliers, how their suppliers handle their sourcing, how those sub-suppliers in turn get hold of materials and who those other customers are -- and that process of supply network mapping is a multidimensional process. Now we've tried using VR tools to actually visualize those graphs. And that's my excuse for why I got a Quest 3S and I'm sticking to it. In the end, it's just finding that use case. I actually found mind doing virtual workouts. So yes, if anyone needs the image of me doing a virtual dance glass with a Quest 3s on, then that's your image for the day.

Neil Barbour   00:10:00

Yes, there is an interesting story of VR transitioning more cleanly into like a Peloton-like experience. We recently saw a VR treadmill get a pretty good round of funding to sort of elevate itself into this at-home robust workout. So that's an interesting use case. Do you think there is a chicken-and-egg for VR as well since the shipment volumes are relatively small, it's difficult to source affordable components but they can't really reach high sales volumes at the price points they're at. The use case issues notwithstanding. But do you think that's a dynamic they have to push through to reach a broader mass market?

Chris Rogers   00:10:41

Yes, I think it absolutely is. And we've seen that time and again with electronic supply chains, that kind of push to scale, to get the economies of scale going on. We saw that go all the way back to the start of the PC era. We saw it during the smartphone era as well. I would say there's also, I think, a challenge that portable systems face as well as consumer expectations. So is it going to be as easy to use as a phone or a tablet. And in the VR segment, that's simply not the case. I think -- from a supply chain perspective, we're actually watching the alternative reality, so smart glasses space a lot more closely. Again, in full supply chain nerd mode, I got a pair of the Meta Ray-Bans to try them out. And you look at it from a supply chain perspective, it's just staggering getting what effectively is a mobile phone into 2 arms of a pair of glasses. But that is an area where you might see quicker pickup because it's something people are used to using. There's already a well-established industry for making glasses and the components that go in. If you think about what Apple has had to do with the Vision Pro and Meta with the Quest series, it's all bespoke and bespoke supply chains, whether you like it or not, are horribly expensive. For any new technology, you almost need that kind of IBM clone moment that can drive the cost down.

Neil Barbour   00:12:22

Right. Yes, we've been relatively bullish over Kagan on the potential for smart glasses in the 5-year story as well. I think Meta or Luxottica, their partner, have put out some numbers around pretty explosive growth over the past year. Are you seeing that reflected in your data as well? Are we seeing shipments of smart glasses or upstream components really take off and lead with those -- that guidance?

Chris Rogers   00:12:45

It's unfortunately a facet of the data is that smart glasses aren't treated as being glasses. They're treated as being network-connected devices. So it can be tough to see some of those elements. But we certainly -- when we look at Meta's supply chain more broadly, it works with partners like Gerteec coming out of Vietnam. And we do see that kind of surge in shipments that are associated with Meta. So given that the Quest isn't necessarily taking off, that would suggest that we're seeing the smart glasses part really get going. So yes, it is really starting to take off, I think.

Neil Barbour   00:13:22

Interesting. So is gaming and VR and phones, are they the canary in the coal mine? Do you think we'll start seeing the impact more broadly? I'm sort of thinking of maybe TVs or streaming media devices, other sort of mass market devices that are deeply entrenched. TVs have had this narrative over the past 5, 10 years, really the lifespan of the devices, they get cheaper year-on-year. But now the TVs become smart TVs, everything has more RAM in it, more compute power. Are we going to see these segments be affected as well?

Chris Rogers   00:13:56

Yes Yes, absolutely. I think any sector that is using DRAM, you're all buying in the same market. one of the beauties of the technology is that it's effectively generic. That's not the case for high-bandwidth memory for the AI application. There are quality issues that matter a lot more. But again, this is a matter of where the capacity is being made available. So you will see it across the board. You'll see it in televisions. You'll see it in audio equipment. We're seeing it in cars as well. And I think the other thing to bear in mind is over the -- we're recording this at the beginning of May. But as we go into the June, July period, that's when firm starts scaling up. their manufacturing of consumer electronics for the peak sales system in Western markets, particularly in North America and in Europe. And so as that demand picks up, we'll start to see the market DRAM prices, particularly for the smaller modules start to pick up as well. So I wouldn't be surprised to see a new round of price increases coming through across most consumer devices as we head into the October, November peak season.

Neil Barbour   00:15:09

Interesting. Yes. And just to pick at that point a little more of the difference between like high bandwidth and more traditional memory modules. I think the idea is that the production capacity that used to churn out more legacy memory modules have transitioned to producing the HBM. So there's generally just less supply available.

Chris Rogers   00:15:31

Yes, absolutely. I mean I'm not an electrical engineer, so I wouldn't be able to get into the pins of it. But that's effectively when you look at the -- so when we look on S&P Capital IQ, the earnings transcripts for companies like SK hynix, Samsung Electronics, Micron, the major manufacturers, that's really what they are all pointing to is that kind of redirection, but also not just redirection of existing capacity, but in terms of where they're planning to make their investments in new capacity going forward as well.

Neil Barbour   00:16:04

So do we have a sense of how long the general memory shortage will last?

Chris Rogers   00:16:08

Yes, it's a great question, because I think the -- what we've seen in previous cycles for memory is that the peak to trough has been 18 months to 2 years. And that kind of chimes with how long it takes to stand up additional fabrication capacity. And because putting aside some of the qualification stuff with HBM, for DRAM, it is so generic. It's like any other commodity. You bring more capacity in unless demand is there, you are going to see it the price turn around pretty quickly. Now the chip makers have been scaling up their CapEx, the capital expenditures. But that's only really when you look at the financial data and when you look at the consensus forecast we get through services like Visible Alpha, we can see there that the capital expenditures are picking up right now. They only really hit their stride in 2027. So that capacity really is only going to be helping offset the excess demand in late 2027 and into 2028. And then again, when we look at the comments being made by Micron and Samsung and so on, they're starting to cite 2029 as a period when we'll start to see supply and demand come back into balance. Now to a certain extent, they've got interest in saying prices are going to stay high for a long time, buy now while you still can. But again, I think this time is slightly different to previous cycles because you've got that whole new use case coming in. This isn't just a case of there's a great upgrade cycle for the iPhone or we're suddenly getting into a new round of PlayStation or Xbox releases, this is like a whole new area. So we'd expect it to take certainly at least another couple of years before that shortage starts to die back.

Neil Barbour   00:18:02

So beyond just the memory shortages, I think your data shows that import tariffs, as you sort of mentioned before, are forcing hardware makers to rethink their entire geographic footprint. Can you walk us through where production is moving?

Chris Rogers   00:18:15

Yes. I think it's pretty simple. It's Vietnam. Vietnam has been the center for reshoring for Chinese firms across many different industries. And in video game consoles, we've seen the U.S. imports now 29% of them come from Vietnam compared to 3% a year earlier. China has fallen by the same amount, so down to 53% from 82%. So absolutely kind of a switch coming through there. Pun intended, that is partly due to the switch, but it's also been partly due to the fact that we're in a little bit of the off-season in terms of new releases from Microsoft and Sony. And so we started to see deliveries of other systems. Obviously, Steam have been making some inroads with their equipment, and they've got a new series coming as well, of course. So yes, I think Vietnam has been the biggest winner. Now the challenge right now is the tariff scene is very uncertain. We don't yet know what the final form of tariffs for technology goods is going to look like. there's a complete -- and we can have a whole other podcast on this. I don't think anyone would want to listen to Okay. Good. Well, there'll be 2 of us listening to it about how the tariffs are changing. And we would expect tariffs to be -- to remain in place for at least the next couple of years. So I think as that goes into the planning cycle, we'd expect to see all of the major equipment manufacturers look for the cheapest location that they can to try and ameliorate some of the tariff cost.

Neil Barbour   00:19:54

So you talk about console makers maybe being in an off cycle, but Grand Theft Auto VI slated to launch this fall, probably drive a ton of demand, maybe new people coming into the market who haven't bought a new console saying they want to upgrade now. and get into this big new releases. Is there any indication that console vendors will be supply constrained later this year?

Chris Rogers   00:20:15

I think it's really too early to tell whether that's going to be the case. Clearly, there's a lot of different moving parts. We are, I think, seeing -- one of the reasons we're seeing the higher memory prices is because of some of the more cyclical device makers looking to lock in available volumes so that they can have them when they require them later in the year. I'm not sure you necessarily want to hang a massive hardware investment on when GTA 6 is coming out. I think it's been coming and coming for a while. I'm presuming that's like nailed down this time, right? But...

Neil Barbour   00:20:52

You're saying if it slips again, then you had all this hardware on hand, and that's an inventory problem for you.

Chris Rogers   00:20:57

Exactly, particularly if it's a mature device already. I think it is worth bearing in mind as well that even the accessories and peripherals now do have rising component costs. It's a really difficult balancing act. And certainly, you don't want to be left with machines on the shelf that are out of date. If anything, you can almost see them being willing to say, actually, we'll wait a bit. And if we end up short going into the holiday season, then we're short going into the holiday season.

Neil Barbour   00:21:23

I think you already touched on this. We over here at Kagan have been saying for a few years that the console vendors might wait until 2028. I'm thinking specifically of Sony and Microsoft here, which would be a year or 2 longer than they would have in previous console cycles. So if a console had previously been on the shelves 6 or 7 years, maybe they'll go 7 or 8 years for the PS5 and the series consoles, mostly based on the assumption that the combination of inflation, tariffs and other macroeconomic headwinds would get in the way. But what are you guys seeing? Is it still possible consumers see new consoles next year? Or is the 2028, 2029 time frame more practical at this point?

Chris Rogers   00:21:58

Yes. I think that later time frame is more likely. Project Helix, which is effectively Microsoft's next Xbox, they themselves have said it's probably not going to be shipping to developers until 2027. And if you look at previous cycles, that means you'd be looking at kind of holiday season 2028 for whatever they call the next Xbox. I haven't seen signs from Sony so far of what we're looking at there. There are, of course, and I don't know what your data shows in this, but we do see kind of other companies delivering new product as well. Valve have got a new series of systems coming. Obviously, they seem to have had quite a bit of success with the Steam Deck itself, although they are obviously much smaller scale, they're much simpler devices. They don't tend to have kind of cutting-edge processes and so on. And I guess the other question is whether consoles of the future at all, of course, whether we'll all be just gaming on PCs or on other systems. But right now, yes, I think it's going to be 2028 before we see the next main series of devices from Microsoft and Sony.

Neil Barbour   00:23:06

And even with Valve, there was a sense that we would have more details on that console at this time. And I think they released the controller they had designed to ship with that PC/console or whatever the steam machine box they're making is. So -- so it looks like they're even fighting through maybe some supply chain or having second thoughts about maybe pricing and packaging.

Chris Rogers   00:23:25

Yes. Supply chains are always difficult to stand up when you've got a new device. And it's why it's never a surprise when you see a new device being delayed by a few months. You really just have to get that right. What you certainly can't do is deliver a product that doesn't work correctly first time. Absolutely.

Neil Barbour   00:23:42

Yes. So Chris, I understand you're a bit of a gamer yourself and maybe one of your favorite games revolves around supply chains. Do you want to walk through that a little bit for us?

Chris Rogers   00:23:50

Yes. Having just confessed to dancing with a VR headset on. No, as a team, our supply chain research team are very much into No Man's Sky. At the end of the day, that is more or less a supply chain-based product game, excuse me, to succeed, you've got to gather the right products in the right order, build them up. So I've been enjoying that, although I have to not play it for too long. I get very absorbed in it. Frankly, it's terrifying at times. So yes, limited gaming time kids, no more than 1 hour at a time.

Neil Barbour   00:24:23

I remember playing that game in a VR headset when they did a certain update at one point. So have you combined your Quest 3S with your No Man's Sky journeys yet? Wow.

Chris Rogers   00:24:34

I'll have to give that a go. I'll make sure I've got someone's hand to hold when I do that though.

Neil Barbour   00:24:39

All right, Chris. Well, thank you so much for your time. Thanks for having me.