Apple accused of NAND flash memory price manipulation

Posted:
in General Discussion edited January 2014
Apple has been accused by anonymous industry sources of utilizing "bully" tactics to manipulate NAND flash memory prices to the hardware maker's advantage.



According to The Korea Times, Apple has leveraged its power against major companies like Samsung and Hynix Semiconductor through the popularity of the iPhone and its line of iPods. The company has been accused of suppressing flash memory prices by ordering more chips from semiconductor makers than it actually buys.



Quoting a nameless "senior industry official," the report stated that Apple has asked Korean semiconductor companies to make a certain amount of chips. But the Cupertino, Calif., company allegedly does not purchase the volume it requests.



Instead, sources said, Apple simply waits until chip prices fall to levels the company finds acceptable. Then it purchases its allotment at a price that meets its internal expectations.



Another official called Apple's tactics "absurd," and suggested that the strategy will hurt the health of the NAND flash industry. Prices of flash memory chips are said to have dropped 4 percent this month.



Twice recently, Apple was accused of causing a worldwide NAND flash shortage. Demand for flash memory was said to have been outstripped by supply for major manufacturers as the iPod and iPhone continue to sell millions of units. Demand in the third quarter of 2009 was said to have exceeded supply by 1.3 percent.



The capacity of memory in Apple's flash memory devices has grown exponentially over the years. In September, the company unveiled its largest-ever 64GB iPod touch for $399, doubling the previous largest 32GB offering.
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Comments

  • Reply 1 of 60
    I have heard of a limited number of sellers controlling a market, but a buyer controlling a market... that's ridiculous.
  • Reply 2 of 60
    Quote:
    Originally Posted by fulldecent View Post


    I have heard of a limited number of sellers controlling a market, but a buyer controlling a market... that's ridiculous.



  • Reply 3 of 60
    This is hilarious - Samsung complaining of a buyer using bullying tactics.



    Samsung buy from the company I work for, and bully all of their suppliers relentlessly.
  • Reply 4 of 60
    In theory its not ridiculous. A single super powerful buyer could essentially dictate their terms and control the market. However, the bigger problem is that the flash makers can't have it both ways. Apple has been accused of causing a worldwide flash shortage and apple is accused of not buying enough Flash memory. Those can't both be true. Either Apple is "forcing" makers to make more than they want, and there is a surplus of flash, or they are buying more than the market can make and there is a shortage. Which is it?



    Apple may be powerful, but it can't beat the basic logic of supply and demand.
  • Reply 5 of 60
    wigginwiggin Posts: 2,265member
    Two problems with this claim:



    1) If demand is outstripping supply, then it's quite irrelevant that Apple may (or may not) actually buy as much as they ordered. Either way the suppliers are failing to keep up with demand. What would they do if Apple actually did buy as much as they ordered? They can't hardly deliver chips they haven't made!



    2) I thought in previous articles on the topic of Apple "cornering" the market for flash that the prices were set at the time of the order? If that is true, then the theory that Apple waits until prices drop (presumably due to the oversupply of chips because Apple over-ordered) doesn't hold up either. Apple would still be paying the previously agreed to price.
  • Reply 6 of 60
    ronboronbo Posts: 669member
    Quote:
    Originally Posted by FJRabon View Post


    In theory its not ridiculous. A single super powerful buyer could essentially dictate their terms and control the market. However, the bigger problem is that the flash makers can't have it both ways. Apple has been accused of causing a worldwide flash shortage and apple is accused of not buying enough Flash memory. Those can't both be true. Either Apple is "forcing" makers to make more than they want, and there is a surplus of flash, or they are buying more than the market can make and there is a shortage. Which is it?



    Apple may be powerful, but it can't beat the basic logic of supply and demand.



    Yep. Seems to me that you could be accused of causing shortages and of causing prices to go too low, but to accuse Apple of doing both is too much like complaining that the moon causes tides.
  • Reply 7 of 60
    solipsismsolipsism Posts: 25,726member
    This seems to make to make no sense on many levels.
    1. A buyer is price gouging the seller. WTH!

    2. They are complaining that Apple isn’t buying as much as promised (You write up contracts to guarantee they do buy what they say they will)

    3. They are complaining that demand is more than the supply they can produce.

    The complete irrational rambling of these complaints make me think Teckstud now works for Samsung.



    Seriously, considering the iPhone just launched in S. Korea with what appears to be a very successful start, and that Samsung is a S. Korean company and the largest(?) cell phone supplier to S. Korean telcos this may just be a tactic to get the locals to disfavour the iPhone by making Apple look bad.
  • Reply 8 of 60
    djrumpydjrumpy Posts: 1,116member
    I actually LOL'd when I read this story. So many people type it, but so few do.



    This is hilarious
  • Reply 9 of 60
    elrothelroth Posts: 1,201member
    Samsung and Hynix (along with Infineon) recently paid $160 million to settle a price-fixing suit (for DRAM). I guess they know a lot about price manipulation.
  • Reply 10 of 60
    this is the first time i've ever heard of demand outstripping supply, yet prices fall. Unreal.
  • Reply 11 of 60
    Quote:
    Originally Posted by fulldecent View Post


    I have heard of a limited number of sellers controlling a market, but a buyer controlling a market... that's ridiculous.



    That's some serious naivity right there. You don't think that huge chains have massive leverage over suppliers? You don't think someone McDonalds or Walmart can put a supplier out of business simply by breaking wind? What about Amazon and publishers fo rexample.



    There is quite an ongoing debate about the power of buyers to squeeze suppliers to the brink, it's not uncommon.
  • Reply 12 of 60
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Zoolook View Post


    That's some serious naivity right there. You don't think that huge chains have massive leverage over suppliers? You don't think someone McDonalds or Walmart can put a supplier out of business simply by breaking wind? What about Amazon and publishers fo rexample.



    There is quite an ongoing debate about the power of buyers to squeeze suppliers to the brink, it's not uncommon.



    I can understand a company being foolish by making a bad deal or a small company getting squeezed by a larger one, but this is Samsung. There yearly revenue in 2008 was more than Apple?s then market cap. If a company promises to buy x amount of flash at a set price then you write that up along with penalties, such as price changes if they don?t buy that much.



    PS: McDonald?s is quite unique among many companies in that they have many long standing contracts with large suppliers, like Coca-Cola, that are verbal agreements solidified by a handshake.
  • Reply 13 of 60
    Apple is just beginning to affect the walled-off-from-competition Korean market. You may have read about the immediate effect the iPhone introduction has had on local cell phone offerings (I think the article may have been in the Wall Street Journal).
  • Reply 14 of 60
    Quote:
    Originally Posted by fulldecent View Post


    I have heard of a limited number of sellers controlling a market, but a buyer controlling a market... that's ridiculous.



    look up the words monopsony and oligopsony.
  • Reply 15 of 60
    Been telling family and friends for years. The buyer has all the power. We the consumer have more power than any industry. We (as a whole nation) are stupid and don't research what we buy. When we do that we are throwing away our power. We chose what is made and what is not made. If more people were concerned about quality instead of quantity LCD tv's wouldn't be here. OS X would have a much higher market share, we wouldn't buy "American" cars just because it's "American" supporting companies that take our jobs away and build "American" cars in foreign plants. We wouldn't have a credit (how the gov keeps track of you) crunch. We wouldn't have a mortgage crisis. If people were smarter and more disciplined (live within your means) we would all be better off.



    Thats's right! I have no bank accounts, no credit cards, no loans, no cars in my name. All cash all the time, ain't nobody in my business Was even thinking of de-printing my fingers.



    To the point.

    Apple could be like that coke dealer who buys up everything in sight, stashes it, and when the land is dry, sell it back at a higher price. I don't see anything wrong that. It's their money. But at no point would the price go down, wth!
  • Reply 16 of 60
    vinney57vinney57 Posts: 1,162member
    The Koreans are about to get their phone market handed back to them in bits by Apple. The dirty war of words begins... (see also Nokia etc...)
  • Reply 17 of 60
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by schmidm77 View Post


    look up the words monopsony and oligopsony.



    Neither of those terms work here. There are a lot more buyers than there are sellers of NAND. What we have a very dominate buyer affecting the price. The problem is that Samsung seems to be arguing that two opposing outcomes are happening at the same time, which don?t make any sense. On top that, the fact of the matter is if remove Apple from the equation completely we have much higher priced NAND for the other buyers and we have the NAND sellers make a lot less money.



    This really seems like Samsung trying to indirectly persuade the Korean people to hate on Apple and not buy the iPhone.
  • Reply 18 of 60
    Quote:
    Originally Posted by vinney57 View Post


    The Koreans are about to get their phone market handed back to them in bits by Apple. The dirty war of words begins... (see also Nokia etc...)



    Spot on bro.



    To the Koreans:



    Instead of getting on your knees and thanking apple for making billionaires of you while actually making something useful out of your chips and selling it to the masses in millions, you complain about them being getting the best price they can?



    Load your chips on ships and go sell them yourselves then to flea markets.
  • Reply 19 of 60
    correct me if I'm wrong...

    but the way I understand it:

    Apple is ORDERING a large number of NAND chips from Korea, thus Korea PRODUCES the number of chips ordered.

    Then it seems like Samsung is accusing Apple of forcing them to HOLD ON to the chips they made, exclusively for Apple, until Apple feels like buying them.



    That is the only way this could work....

    ... and if that is really the case.... Samsung has some of the worse lawyers in the world...

    and needs to hire better people to come up with their contracts.



    If you put it any other way... there claims wouldn't make sense..... like

    everyone else is stating.



    It just sounds like the company is upset they aren't making as much money anymore

    from flash memory.
  • Reply 20 of 60
    Quote:
    Originally Posted by m2002brian View Post


    Thats's right! I have no bank accounts, no credit cards, no loans, no cars in my name. All cash all the time, ain't nobody in my business Was even thinking of de-printing my fingers.



    No savings? No pension? Or do you have money in real-estate?
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