How Will Production Cuts from “The Big Three” Impact Your Component Prices?

Worried about sudden price hikes? Major suppliers are cutting production, and this move will directly affect your budget. Understanding their strategy is key to protecting your supply chain.

Production cuts from major manufacturers¹, like Samsung, SK Hynix, and Micron², reduce current supply to stabilize falling prices. This often leads to future shortages and significant price increases once demand recovers. Procurement managers should expect a volatile market³ ahead.

I've been in this industry for over 20 years, and I've seen this cycle play out time and time again. It’s a classic move by the industry giants. They control the flow, and when they turn down the tap, everyone downstream feels it eventually. It might seem like good news now if prices stop falling, but the real story is what comes next. To really understand what's coming for your bill of materials (BOM)⁴, we need to look closer at who these players are and why they hold all the cards. Let's break it down.

Who Are "The Big Three" and Why Do Their Decisions Matter So Much?

Hear about "The Big Three" but not sure who they are? Their decisions can create a supply crisis⁵ for your essential components. Let's clarify who they are.

"The Big Three" typically refers to the dominant players in the memory market⁶: Samsung, SK Hynix, and Micron². Together, they control over 90% of the global DRAM market⁷. Their production levels⁸ directly dictate global supply, availability, and pricing for these essential components.

In the electronics world, especially for memory like DRAM and NAND, a few companies have enormous power. We call them "The Big Three." Their combined market share is staggering. Think about it—three companies essentially decide the fate of the world's memory supply. This isn't just about memory chips; it's a ripple effect. When they cut production, it doesn't just affect computers and smartphones. It impacts automotive systems, industrial controllers, and IoT devices. I remember a time a few years back when a similar cut led to a scramble for DDR3. Projects were delayed for months. Their control is absolute because building a new semiconductor fab costs billions and takes years. No new competitor can just show up. So, when they act together, the entire industry has to listen. Understanding their power is the first step in building a resilient supply strategy.

Global DRAM Market Share (Approximate)

Why Are These Giants Suddenly Slashing Production and CAPEX?

Why would these giants cut production when the world needs more chips? It’s a calculated move that will eventually raise your costs. Let's uncover the simple reason why.

They are slashing production and capital expenditure (CAPEX) to combat a market glut. After a period of high demand, the market is now oversupplied, causing prices to plummet and hurting their profits. Cutting production reduces inventory and stabilizes prices, setting the stage for future price increases.

The semiconductor industry runs in cycles. Think of it like a pendulum. For the last couple of years, demand was off the charts. Everyone was buying electronics, from laptops for remote work to new cars. To meet this, "The Big Three" invested heavily and ramped up production. But now, the pendulum is swinging back. Inflation is up, consumer spending is down, and warehouses are full of unsold products. This oversupply makes chip prices fall, and that's bad for their bottom line. So, what do they do? They cut production to stop the bleeding. They also slash their Capital Expenditure (CAPEX)⁹, which means they stop investing in new factories and equipment. This is a crucial detail. It not only tightens supply now but guarantees that supply will be tight in 12-24 months when demand inevitably picks up again. It's a classic strategy to regain pricing power.

What Immediate Effects Will We See from These Production Cuts?

So, they're cutting production. What does this mean for your orders right now? The first effects are subtle, but they signal a bigger shift. Let's look at the immediate signs.

The most immediate effect is price stabilization¹⁰. The freefall in component prices, especially for memory, will slow down and stop. You might also see lead times¹¹ for certain parts begin to lengthen slightly as manufacturers burn through existing inventory without quickly replenishing it.

Right now, you might feel a sense of relief. The crazy price drops for parts like DRAM and NAND will stop. This is the first, most visible effect. The market will find a price floor. For a procurement manager, this looks like stability. But don't be fooled. The second effect is happening behind the scenes. Manufacturers will start shipping from their existing inventory instead of making new batches. This means that while parts are still available, the deep, excess stock is shrinking. I saw this happen back in 2019. Prices stabilized for two quarters, and many buyers thought the market was just balancing out. They didn't increase their safety stock¹². Then, when demand ticked up, lead times¹¹ went from 4 weeks to 20 weeks almost overnight. The "stability" was just the calm before the storm.

Immediate Market Changes

How Will Today's CAPEX Cuts Create Tomorrow's Supply Chain Headaches?

Today's market seems calm, so why worry? Because today’s investment cuts are planting the seeds for a future supply crisis⁵. Let's connect the dots for you.

Slashing Capital Expenditure (CAPEX)⁹ means no new factories or production lines are being built. Since it takes 2-3 years to build and equip a new fab, today's cuts create a fixed supply ceiling for the future. When demand recovers, supply won't be able to keep up.

This is the part that many people miss. A semiconductor fab is one of the most complex structures on earth. It costs billions and takes at least two years to build and qualify. When "The Big Three" cut CAPEX, they are turning off the faucet for future supply. They are betting that by the time a new factory would have come online, demand will have recovered. And they are almost always right. Economic cycles turn, new technologies emerge, and people start buying again. But because no new capacity was added, the supply is fixed. Demand starts to outstrip supply, and that's when the real pain begins for procurement teams. We call it the whipcrack effect. Prices don't just go up; they skyrocket. Allocations become the norm. The parts you bought for $2 are suddenly $10, if you can even find them. Today's quiet decision to not invest becomes your biggest headache in two years.

What's the Smartest Way for Procurement Managers to Prepare for This Cycle?

You know a supply crunch is coming. What can you do? Waiting means paying premium prices and risking production delays. Your best defense is a proactive sourcing strategy¹³.

The smartest way to prepare is to build a strategic partnership¹⁴ with a reliable global distributor. This allows you to secure long-term supply agreements, increase safety stock¹² at current low prices, and identify alternative parts before a crisis hits. Don't wait until everyone is panicking.

As a procurement manager, you can't control what "The Big Three" do. But you can control how you react. Now is the time to be strategic, not complacent.

1. Secure Long-Term Agreements

Work with your suppliers to lock in prices for the next 12-18 months. While prices are low, negotiate fixed-price contracts for your most critical components. This gives you budget certainty.

2. Build Safety Stock

Use the current low-price environment to your advantage. Increase your safety stock¹² on essential and long-lead-time parts. It’s a small investment now that will pay huge dividends later.

3. Partner with an Expert

This is where a partner like Nexcir¹⁵ becomes invaluable. With our global network, we can source components from different regions, finding pockets of availability others miss. Our 20+ years of experience mean we've navigated these cycles before. We can help you identify second sources and plan your procurement roadmap¹⁶ to avoid the worst of the coming crunch. Don't go it alone.

Conclusion

Production cuts by "The Big Three" are a clear signal. Prices will stabilize, then rise. Proactive, strategic sourcing with a trusted partner is the key to navigating what's next.