DRAM and to a lesser degree storage are notorious for their feast and famine cycles

(Well that and collusion)

I don’t know if they realize that collusion lends itself to feast/famine.

but if you don't collude during times of feast you will have famine, and during times of famine you will have famine, in an economy based on feast/famine you must sometimes feast or die.

There are a lot of cyclical businesses that make money every year. It requires careful management. Factories can produce less than full capacity - but you better design for that. you can make money in the worst years without laying anyone off even - but it requires careful attention to details and not over hiring in good times as if they will never end.

Factories working at (significantly) less than full capacity gets a bit harder when you've got one of the most expensive machines on earth working in them, and production lines that'll be out of date in a couple of years

the normal way to do that is by hiring/firing to meet demand, but in the fab business, you have 10s of billions of dollars of capex with relatively little opex. if you're running at <90% capacity, you're losing money.

That is the common way, but there are companies that manage without hiring/firing. (or they hire temp workers). There is a minimum level of capacity you need to run just to keep the lights on, and figuring out how to get that low without impacting your ability to serve the highs is hard. Memory manufactures have not gotten very low, probably for good reasons, but it is something they should work on.

Last year ai folks are all over wallstreet and articles, decrying how hardware folks are a roadblock to new frontiers in AI. They just couldn't print and pack the new chips faster.

The problem in this case seems to have sprung from a lack of collusion. Altman reportedly approached Samsung and SK independently to strike deals for a large chunk of both companies' production. Neither party apparently knew he was negotiating with the other.

If they had actually been communicating or colluding with each other, they would have put the screws to him, making it harder for OpenAI to assert control over the vast majority of the DRAM market.

Failing that, you'd like to think a regulatory agency somewhere would step in to keep a single player from hosing everybody else, but...

> Failing that, you'd like to think a regulatory agency somewhere would step in to keep a single player from hosing everybody else, but...

Up until AI there weren't really players being able to gobble 40% of the market so nobody was looking.

> Neither party apparently knew he was negotiating with the other.

I don’t buy it that two of the largest manufacturers of DRAM in the world, from the same country, didn’t know this. Even of you ignore each company’s intelligence teams, that’s also the job of the country’s internal intelligence services, to make sure they know what all companies are doing and then make it so they have the best leverage to gain as much as possible. Both companies would have known “somehow” and played hardball.

Wut? How they [gov] would know that?

By spying?

How would the country’s internal intelligence services know what’s happening? Yes, by spying. That’s literally their job and they have assets in every critical area in a country. Every institution, every major industry player, they are monitored to a degree by the internal intelligence in every country in the world. There are more nefarious reasons to do this but the ostensible one is that if it’s of strategic importance the country needs to know everything there is to know.

The companies also do a lot of spying themselves, every bit of info could give them an edge.

All of the capital intensive businesses face this issue. Chemicals, Shipping, Semiconductors etc.

You get market signals that the demand is there, you acquire the necessary capital, you spend 5 years to build capacity, but guess what, 5 other market players did the same thing. So now you are doomed, because the market is flooded and you have low cash flow since you need to drop prices to compete for pennies.

Now you cannot find capital, you don't invest, but guess what, neither your competitors did. So now the demand is higher than the supply. Your price per unit sold skyrocketed, but you don't have enough capacity!

Rinse and repeat.

Capitalists claim that this is optimal.

The book Capital Returns: Investing Through the Capital Cycle details this phenomenon, including historical cases.

If anything, it shows it's possible for you to arbitrage this and in doing so help "smooth out the cycle."

Is the DRAM industry really capitalist? Focusing on just the Korean parties, it functions like a command economy. I would say the same about most high end semi-conductor manufacturing, TSMC, Intel, ASML are being commanded and driven by nation-state level decision making. Right now the command is to focus on high wattage centralized AI systems at the expense of everything else.

No one at high levels is capitalist, in ideology or action. An ideological capitalist would be in favor of competition, but these people disdain it and collude regularly. The only 'capitalist' actions they take are by accident, the real goal is as much power/money as possible as fast as possible.

We don't even expect companies to plan long-term anymore, it's just moving wealth as fast as possible.

That isn't really a change, very few people could ever have been said to be ideological capitalists. (capitalist is not a word with a hard definition, but I'm considering it a different thing than the more modern pure libertarian zero-regulation ideology)

Liberalism (in the traditional economic sens) likes competition. Capitalism is a mode of production, and capitalists notoriously don’t like competition when they are the incumbents

I think the common use of the term capitalist is as a participant in capitalism.

This is distinct from someone who is a proponent of capitalism as a system, which appears to be the way you are using capitalist. For which I don't blame you.

>Capitalists claim that this is optimal.

It's more optimal than planned economies until we have AI planned economies with realtime feedback, I guess.

Consumers get cheap goods during oversupply and most inefficient companies get elliminated during bust while consolidation leads to economies of scale.

No this is literally a sign of an unstable system with too high of a gain K.

There is an alternative where legislation dampens this behavior but the short term profits will be lower. Hence the hawks don’t like it.

This is a wild take.

Sophomoric take more precisely.

>legislation dampens this behavior

Potentially. Well meaning and thought out legislation still distorts the markets, possibly making things objectively worse.

Why is the opposite of capitalist markets automatically assumed to be a command economy? Co-op style businesses aren't really capitalist orientated but are also not reliant on government action.

> Capitalists claim that this is optimal.

Because that does not happen exactly as you say for all players. The demand signals will be processed and long-term risk is balanced against short-term gain in a distributed fashion, so not everyone will do the same.

Sufficient diversity of response will only appear when there are enough competitors. When there are only a few, it doesn't necessarily work out.

Forecasting demand 5 years into the future is intrinsically highly unreliable. It doesn’t matter if it is capitalism or a command economy. The bet is always going to be risky and someone will have to pay for that risk.

At least with capitalism you have many different people with different perspectives on the risk making independent bets. That mitigates the more extreme negative outcomes.

To add to that, investors who do make the bet get punished for over-building, which is better than tax payers paying for it. And before someone says it, big corps do get bailed out by gov't, but that's definitely goes against capitalist ideas.

Also it is government job to regulate. Monopolies should be busted, and behaviour like that should be culled. But US govt is full on AI to mask them cratering their own economy.

It's not optimal, it's pathological. Definitely better than starving under communist dictatorships though.

The sheer fucking blazing ignorance of this comment

> Capitalists claim that this is optimal.

Compared to starving under communism coz someone at top got the number wrong, yes. And it only really happens when there are massive, unpredictable market movements and governments not doing their job. Govt should look at the whole thing and just say "no", blame them.

No market system self regulates well enough, and it's government job to file down the edge cases like this. But the revolution happened in country which has two utterly incompetent parties, both in pockets of billionaires, fighting for power, and the clowns from one that won last battle use AI to smokescreen the economic growth their actions cratered

> Capitalists claim that this is optimal

That's not what capitalists claim. Capitalists claim communism is responsible for tens, if not hundreds, of millions of death due to famine. And overall miserable ways of life, as if humans were termites deprived of any individualism and any freedom.

Capitalists claim that France importing 500 000 people from the third world each year, out of which only 10% are ever going to work (and these are official numbers) and yet offering them all a safety net is unsustainable. And that that socialism is only going to lead to one thing: running out of taxpayers' money.

Capitalists don't claim they have the best system: what they claim is that they haven't seen a less worse one.

I don't know who these "capitalists" are, but generally speaking business regularizes as entrepreneurs learn to read new signals after unexpected market shifts.

It is unlike a socialist system in that there are signals to read in the first place. What, do socialists claim that failure is optimal when you can't even tell if you've failed?