SEOUL, June 30 (AJP) - South Korea's sharp pullback in chip output in May is adding to signs that the global memory crunch is no longer confined to data centers, with chipflation from soaring memory prices beginning to strain consumer spending and factory floors.
Factory output fell 3.0 percent from the previous month in May, matching its steepest monthly drop in a year, according to the Ministry of Data and Statistics on Tuesday.
The index of all-industry production, excluding agriculture, forestry and fisheries, slipped 0.3 percent from April, marking a second consecutive monthly decline.
Semiconductor production tumbled 10.0 percent from the previous month, led by lower output of DRAM and NAND flash memory chips.
The decline reflects an industry-wide shift in wafer lines rather than reduced demand.
As memory manufacturers increasingly allocate capacity to higher-margin high-bandwidth memory (HBM) for hyperscale AI data centers and AI accelerators, supplies of conventional DRAM and NAND used in smartphones, personal computers and other consumer electronics have tightened sharply, pushing up component costs throughout the supply chain.
Lee Doo-won, a senior ministry official, told reporters the decline reflected production adjustments related to delivery schedules and higher semiconductor prices, while stressing that underlying demand for chips remained strong.
Other output data showed improvements. Retail sales edged up 0.1 percent in May after plunging 3.5 percent in April, while equipment investment slipped 0.1 percent.
Services output rose 1.3 percent and construction completed rebounded 3.8 percent, helping cushion the overall decline in industrial activity.
Samsung Electronics and SK hynix this week announced multi-trillion-won capital spending plans to expand advanced memory production. SK Group Chairman Chey Tae-won said global memory shortages are likely to persist as each new generation of artificial intelligence requires exponentially greater memory capacity, describing memory as the indispensable fuel powering the AI era.
Micron Technology also signaled a structural shift in the industry during last week's record quarterly earnings release. The U.S. chipmaker said it has signed 16 Strategic Customer Agreements with major hyperscale customers representing roughly $22 billion in long-term commitments, arguing that such contracts would make its earnings more durable and predictable.
The announcement underscored how AI infrastructure customers have become the industry's priority allocation.
The shift is increasingly being felt by consumer electronics manufacturers.
Research firm Gartner estimates combined DRAM and NAND prices could climb as much as 130 percent by the end of 2026, lifting PC prices by 17 percent and smartphone prices by 13 percent from 2025 levels.
IDC has likewise warned that rising memory costs are forcing device makers to adjust pricing, product specifications and production plans.
The impact has already begun to appear on store shelves.
Apple last week raised prices for several MacBook and iPad models, citing sharply higher memory and storage costs driven by AI-related demand, while Xiaomi increased prices on several smartphone models in China earlier this year.
Samsung Electronics has also raised prices for selected higher-capacity Galaxy smartphone models as memory costs and foreign exchange pressures mounted.
Consumers have taken collective action amid the surge in prices.
A proposed class-action lawsuit filed on June 25 in the U.S. District Court for the Northern District of California accuses Samsung Electronics, SK hynix and Micron Technology of conspiring to restrict supplies of conventional DDR3 and DDR4 memory while shifting production toward higher-margin HBM, allegedly inflating prices for mainstream memory products.
While the plaintiffs allege unlawful coordination, most industry analysts attribute the shortage to explosive AI infrastructure demand, production conversion cycles and advanced packaging bottlenecks rather than coordinated supply restraint.
Central banks increasingly worry that "chipflation" could keep core inflation elevated even after Gulf-related energy price pressures subside, as semiconductors become an increasingly significant input cost across the global economy.
The May production figures suggest not a collapse in semiconductor demand, but a structural reallocation of manufacturing capacity toward AI infrastructure.
As more memory output is directed to data centers, the costs are increasingly flowing through the broader economy—from factory floors to consumers purchasing everyday electronic devices.
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