In price risk primarily due to price volatility of

In this section we will first see the various
commodity price risks Computer industry is facing followed by, how each of the
three firms have established their responses to offset the commodity price
risk. Computer Industry is exposed to input commodity price risk primarily due
to price volatility of the following items which are considered as commodities
by the Computer industry: Dynamic Random Access Memory (DRAM) and NAND flash

Now let’s get into the details of what a DRAM and a
NAND memory is. DRAM is a type of memory that a computer processor needs to do
its function. DRAM is that random access memory (RAM) used in personal
computers (PCs), workstations and servers. The way it works is Random access
allows the processor to access any part of the memory directly rather than processing
it sequentially, this increases processing speed and performance. NAND on the
other hand is a flash memory which does not need power to retain data unlike
solid state computer hard-drives. NAND memory is found in flash-drives,
smart-phones, cameras and a wide variety of smart devices. The prices of both
DRAM and NAND has been very volatile. Figure
3.1 shows the fluctuations in Spot Price and Contract Price of 8GB DDR4 RAM
and figure 3.2 shows the fluctuations
in Spot Price and Contract Price of a 128GB Multi-level cell NAND.

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DRAM and NAND are a commodity product in the Computer
industry, and its prices are largely governed by demand and supply factors2.
Device manufacturers need a certain amount of DRAM and NAND to meet their
device’s needs for performance requirements of their systems. Factors which are
governing the steep increase in the price of DRAM are: a) booming hardware
market which is making the price double each year and b) mobile and cloud
computing, which being the two new technology growth sectors have fueled the ever
increasing demand of DRAM.

The skyrocketing increasing price of NAND can be
contributed to the fact that the manufacturer of NAND are unable to keep pace
with the strong demand of NAND memory. There are tens of thousands of products
that use NAND memory today, everything from TVs, to smart mobile devices, to thermostats,
to coffee makers, to refrigerators and gaming consoles has an NAND inside it. Anything
that has a power button nowadays has NAND memory in it, and all that demand is putting
a huge strain on NAND manufacturers’ inventory. In figure: 3.3 we can see the growing and diversifying demand for DRAM
and NAND memories.  Further we find that
the demand situation for these commodities are even more complicated. Huge
demand of mobile device forces mobile and smartphone manufacturers produce 100s
of millions of units each year, and typically right around the holiday season, this
further spikes the demand of both NAND and DRAM three to four months before the
release of new units.


Where is the
DRAM market headed?