The Fruity Cargo Cult Apple is finding out that AI has wrecked its old supplier-bullying routine.
After years of making component makers dance for its margins, Job’s Mob yesterday had to admit that it will raise product prices because memory costs have gone bananas.
Fruity Cargo Cult Apple chief executive Tim Cook told The Wall Street Journal that the company had tried to absorb “huge increases” in memory costs, but “the situation has become unsustainable.”
That is a humiliating squeak from a company that built its reputation on squeezing suppliers until the pips squeaked and calling it operational genius. But it also shows how the market has shifted in ways Apple did not predict and failed to adapt to.
The memory crunch is being driven by AI demand, which is eating production capacity for the DRAM used in smartphones, PCs and other consumer kit. For years, Apple and its minions in the Tame Apple Press have been convincing the world that it is cutting-edge rather than an outfit that shows up after all the development work with a pretty box.
Not only did AI totally defeat Apple, being left behind for years by its rivals, it is now being locked out of the supply chains it used to control.
TrendForce reckons prices for the DRAM used in high-end smartphones could rise by as much as 83 per cent this quarter compared with three months ago.
Worse for Job’s Mob, Nvidia is now the bigger beast at the procurement trough because AI systems need mountains of memory.
Nvidia chief executive Jensen Huang said: “We’re the only chip company that buys directly tens of billions of dollars of DRAM from all the DRAM makers.”
That might sound like Huang showing off, but Nvidia’s gross margins sit in the mid-70 per cent range, while Job’s Mob is stuck in the high 40 per cent range.
The old iPhone margin machine has a structural problem because the memory bought for devices goes straight into the cost of goods sold.
Cloud giants can treat data centre memory as capital spending and depreciate it over time, while Job’s Mob has to take the hit more directly.
Cook would not say which products would get pricier, but BofA Securities analyst Wamsi Mohan already expected iPhones to rise by $100.
Mohan now expects another $100 increase on iPhone Pro models, which is brave when iPhones already average more than $1,100.
Job’s Mob needs those pricey devices to push its late and rather sheepish AI plans, but its strongest new AI features will only run on three recent iPhone models.
Deutsche Bank analyst Melissa Weathers said the DRAM shortage “could persist well into 2028 and potentially beyond,” which means Apple’s days of ruling the supply chain are looking rather cooked.
