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Comment by q-big | Hacker News Reader

> Passives are actually quite quick to produce. I think it's a good proof that a few giant distributors in China keep buying, and flushing them down the drain.

What are these immense amounts of passives used for?

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Everything, but I think they are suggesting that the market for them is being suppressed by hording or destruction of product.

Wait why would anyone buy up a large percentage of something to only destroy it?

To hinder competitors? To avoid storage costs?

Apple has been known to buy all of the worldwide supply of a component to destroy it, delaying competitors plans.

Source?

I don't think there is one quite so nefarious, the tale I usually hear is that Apple buys out the manufacturing capacity, say, on 8GB ram chips - and then its competitors can't find 8GB chips for their own phones, and have to offer a meager 6GB of RAM instead. (If you think about it, doubling your RAM just so manufacturers don't have the capacity to supply your competitors is pretty ruthless and genius)

Googling aroubd I see other stories of Apple buying all available capacity of 5nm manufacturing or glass or sapphire for smartwatch screens etc, here's one source for RAM tho (2009): https://appleinsider.com/articles/09/02/18/apple_buying_up_a...

Buying something to destroy it so someone else cannot have it is nefarious.

Buying something in sufficient quantities that results in others not having it, but still selling out of it is not nefarious.

And it's not like Apple waltzes in and just stuffs all the RAM that's lying around into a shopping cart. One of their uses of their cash reserves is to pre-commit to buying the components they need far in advance.

In principle, it seems to me that this shouldn't be causing component shortages — on the contrary, it should reduce planning uncertainty for component manufacturers.

The fact that some companies have contracts for reoccurring scheduled delivers of parts means when the SHTF it's going to be really bad for those that don't.

If Apple has a contract to buy 10% of a manufacturers capacitors. But then material shortages drops the manufacturers capacity in half. Apple's share is now 20% and anyone without a standing order is SOL.

The situation would be the same if Apple did not have a contract, since they can afford to pay a higher. The contract lets manufacturers more easily invest in future capacity.

No, without the contract Apple would have to pay more per part. The contracts are x for $y. They do have clauses for price increases so Apple might be paying more, but not what they would pay without the long term contract.

I don't have insight into Apple ,justthis is how contracts work in general

My comment was to note that Apple would still end up with 20% of the production since they can afford a higher price. So the same situation in terms of allocation with or without a contract, in contrast to what I thought Gibbon1’s comment implies.

In 2009 maybe but for the last 10 years there have always been competitors to Apple who have cheaper phones with more ram on them.

They reserve supply in enormous quantity to box out competitors, as you would expect from the top dog. Perhaps they even reserve more than they need sometimes. But have not seen that they would do it just to deliberately destroy.

I can answer that in the abstract. I don't think that's what's happening, I don't have any reason to think that. Just answering in a vacuum.

Imagine you sell widgets for $200 a pop. Widgets are hard to manufacture, production is limited. Someone else has 10k widgets that they want to sell for $75 per.

If you buy all the stock, people will be forced to buy yours, because of supply constraint.

200-75 = 125 is more income than if you price-matched and sold at 75.

Now why destroy them, and not just sell them back? Well, they're not necessarily identical to the widgets you make. Maybe they have the other brand's logo stamped on them. Maybe the datasheet doesn't quite match.

Either way, your customers might notice. If you just buy and burn, no one downstream of you sees anything, except for higher prices

Note also that the above sounds immoral enough to be illegal in a whole lot of countries, so I would advise you not do that, though I'm neither lawyer nor spiritual advisor.

In the US, doing the latter is a tax write off and perhaps enough to give you a stimulus.

It's crazy for a near-commodity with ample supply, but if there's a supply shortage and (in the short-term) inelastic demand - because it's a relatively cheap thing that's required for a much larger product - then it may easily be economically effective to restrict supply instead of filling it.

E.g. if you can make 100k widgets for all of which you have customers at a dollar each, then in a supply shortage with limited alternatives you may find that if you credibly cut supply to 80k widgets, so that some customers will actually be left out, then they might be willing to pay two dollars per widget (so, 160k instead of 100k for that toy example), so you get more money for less goods.

Damping.

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