Korva is a scroll of the internet’s best ideas.
Samsung invested through every downturn
The boom and bust cycle
Memory used to have tons of makers. Whenever a shortage made the money easy, new players piled in, and Taiwan once had a memory market of its own. Capacity can't come online right away, so the new lines arrived into a glut, prices plunged, and companies got blown out. A leading-edge line now uses EUV machines, and the cost runs into the billions of dollars.
Samsung's contrarian bet
Samsung saw the pattern in the history and concluded that the way to take over the market was to invest during the downturns, so the capacity was ready when the next cycle arrived. That took a ton of guts, a ton of discipline, and a ton of money. It basically wiped out the Japanese makers, the South Koreans took over, and the field shrank to three.
Three disciplined makers
Three makers is not a monopoly, but it is an oligopoly, and all three got far more disciplined about avoiding the mistakes of the past. They aren't colluding, yet they stay on the same page about not overbuilding. That discipline then ran into a secular shift in memory demand that hadn't existed for a very long time.
Why can't memory capacity come online quickly?
A leading-edge fab takes roughly two to three years to build and equip, so capacity ordered during a shortage arrives long after the shortage has passed. Memory is sold as an interchangeable commodity, which means buyers switch suppliers on price alone and a glut drops prices fast. ASML is the only company that makes EUV lithography machines, and a single machine costs well over a hundred million dollars.
How did Japan's memory makers lose their lead?
Japanese companies held most of the world's DRAM market in the 1980s. A 1986 US-Japan semiconductor trade agreement pressed them on pricing and market access, and Korean rivals kept investing through price collapses. In 1999, Elpida was formed from the memory units of NEC and Hitachi, and the company went bankrupt in 2012 before Micron bought it in 2013.
Why do three memory makers behave like one cartel?
When only a few sellers share a market, each one can see that its own new capacity pushes down prices for all of them. That makes every maker cautious about adding supply, even without any agreement between them. The three largest DRAM makers are Samsung, SK hynix, and Micron.
More from Invest Like the Best with Patrick O'Shaughnessy
