Few dispute that GPUs, memories, or TFT-LCD products are some of the most difficult to make of any product globally. These businesses require immense capex to boot. On standard competitive measures like Herfindahl measures, they appear near the oligopolistic extreme, given how few have dominated them for decades. And yet, all were branded commodities forever, and only GPUs seem to have left behind the dreadful tag for sure.
One can ask the question rhetorically: “Can Samsung ever learn proactive pricing?” This is not about Samsung alone, but they exemplify the points of this post.
Confucian culture values harmony, respect for authority, and benevolent paternalism, which work against well-known entities seen practicing predatory pricing. This cultural background may have influenced Korean companies to be overly conservative in pricing decision-making, allowing either the unknown market forces or management consensus to drive product prices.
Pricing for most products is a management decision, even when costs are real. Demand-supply factors matter everywhere, but not as much as they tend to do for memories/LCDs. In other words, memory/LCD makers' behaving like helpless price-takers could also be at least partially due to what they have allowed to happen to themselves.
Until the 2010s, GPUs were a commodity, adhering to industry-standard specifications (e.g., PCI) that made them interchangeable across brands. Their debilitating price wars have stopped, but there is always a fear of price wars resuming in memories at some point. Nobody even discusses TFT pricing ever!
Apple has had tremendous pricing power for decades, but it did not allow much to be passed on to its suppliers. NVIDIA’s behavior seems the opposite, not only in the way its CEO is seen sharing drinks and meals with supply chain partners but also in frequently goading them to allow price hikes. TSMC’s price increases are rising in frequency and amount, with the revenue growth now proving the power of these decisions. Hynix is not far behind. Hon Hai, known for earning pennies while doing the hard work for branded giants, might show how these new-fangled powers are not just with those upstream. It must be learning from NVidia with its new partnerships. Whether these trends stick or not – given that pricing behavior across industries seems to have changed post-COVID (look at airlines!) – will decide how the hardware supremacy era continues for its stocks in the years to come.
Our symptomatic pick, Samsung, could be the proverbial last one to turn or simply not learn. To be sure, it is raising prices like all else, but nobody is as convinced about it when the inevitable overcapacity arrives. Will it consistently retain the pricing power as is expected not just for many other hardware segments but even from the likes of Spotify (talk about price rises and its decision this week!)?
