Apple warns: memory prices will rise even further in September

In his latest earnings call as CEO, Tim Cook issued a stark warning: Apple expects to pay even more for memory in the September quarter. The executive described the current market as 'a hundred-year flood' in memory prices, a metaphor that underscores the magnitude of the problem. The statement, made on July 30, has shaken the tech industry and raises questions about the future of device prices.

What has happened?

Apple has seen memory costs skyrocket in recent months, to the point that the increase in these components was responsible for more than the entire sequential decline in its adjusted gross margin. According to the company's financial statements, inventory at the end of the June quarter reached $11.09 billion, an 87% year-over-year increase and 94% more than the $5.72 billion it had at the end of the previous fiscal year. This stockpile has consumed $5.46 billion in cash over nine months, a defensive strategy to mitigate the impact of rising prices.

CFO Kevan Parekh explained that the accumulated inventory has partially offset memory costs in the June quarter and will do so again in September, but the benefit will taper off afterward. Cook added that market prices continue to rise beyond September and that the impact on the business could grow.

Why is this important?

This situation is not unique to Apple. Demand for high-bandwidth memory (HBM) for AI data centers is absorbing the global supply of DRAM and NAND, creating a perfect storm that drives up prices for all types of memory. Apple, which for two decades has maintained one of the leanest inventories in the industry, has been forced to change its strategy and accumulate record stockpiles. This move reflects the severity of the crisis and uncertainty about when the market will normalize.

Apple's warning has implications for the entire tech industry. If the world's largest buyer of memory cannot escape the increases, PC, smartphone, and server manufacturers will also be affected. Consumers could face price hikes across a wide range of devices, from iPhones to laptops and consoles.

Consequences for businesses and consumers

For Apple, rising memory costs pressure its margins, which are already under investor scrutiny. The company has chosen to absorb part of the impact, but it is likely to pass some on to final prices. Although Apple has not announced specific increases, analysts expect upcoming iPhones and Macs could become more expensive.

For other companies, the situation is a reminder of supply chain vulnerability. Many tech companies depend on a handful of memory manufacturers (Samsung, SK Hynix, Micron), and AI demand has disrupted the supply-demand balance. Those that have not secured long-term contracts could face higher costs and delays.

Consumers, for their part, should be prepared to pay more for technology. Memory is an essential component in any device, and its price increase will inevitably pass through to retail prices, albeit with some delay.

What should readers know?

It is important to understand that this crisis is not a one-off event. Demand for AI memory will only grow in the coming years, so prices could remain high for some time. Companies should consider long-term sourcing strategies, while consumers might take advantage of deals before prices rise further.

Apple is exploring multi-year agreements with its suppliers to lock in prices, but nothing is confirmed yet. The company is also investing in its own memory technology, though results won't be seen in the short term.

Apple's warning is a symptom of a broader problem: the memory shortage is reshaping the economics of the tech industry. Companies that fail to adapt to this new reality could be left behind.

Historical context

This is not the first time the memory industry has experienced cycles of shortage and oversupply. In 2017-2018, DRAM prices soared due to strong demand from smartphones and data centers, leading manufacturers to increase capacity. The subsequent oversupply caused prices to crash in 2019. However, the current crisis is different in its magnitude and the central role of AI as a demand driver. Analysts believe the transition to more advanced memories (like HBM4) and the expansion of data centers will keep pressure on for at least the next 18 months.

Conclusion

Apple's warning about memory prices is an alarm signal for the entire industry. The company, known for its operational efficiency, has been forced to accumulate record inventory, reflecting the severity of the situation. The coming months will be crucial to see how this crisis resolves and what impact it has on final prices. What is clear is that the era of cheap memory has ended, at least for now.