The Fruity Cargo Cult, Apple is discovering that years of bullying component suppliers have consequences, as a global memory shortage destroys its once-formidable purchasing power and threatens its profits.
For decades, Job’s Mob used its enormous buying volumes to steal suppliers’ lunch money and accept miserable prices and demanding contract terms. Manufacturers desperate for Apple’s business had little choice but to cooperate. Now the memory industry has discovered something it can make more money selling chips to somebody else and no longer wants to deal with the bully.
According to The Wall Street Journal, Apple’s purchasing department became notorious for driving down prices and exploiting its position as one of the world’s largest flash memory customers. Under former procurement executive Tony Blevins, suppliers were reportedly pressured to reveal financial information so Apple could ensure no one else got a better deal.
The company’s tactics allegedly included ordering flash memory at rock-bottom prices and then refusing deliveries when market prices fell further. Japanese manufacturer Kioxia, formerly Toshiba Memory, reportedly compared dealing with Apple to Charlie Brown repeatedly attempting to kick a football that Lucy kept pulling away. The comparison seems unkind to Lucy, who at least provided some entertainment.
In another reported incident, Blevins threatened a SanDisk salesman after the manufacturer refused to provide additional chips because other customers were offering better prices. Apple had become accustomed to treating semiconductor companies as particularly expensive servants who should consider themselves fortunate to receive a purchase order.
Unfortunately for Job’s Mob, AI data centre operators have changed the balance of power. Microsoft, Amazon and Meta are purchasing enormous quantities of memory, leaving manufacturers with customers prepared to pay considerably more. According to TechInsights estimates cited by the Journal, those companies now collectively buy roughly twice as much flash memory as Apple, reversing the situation from just two years ago.
The consequences are becoming painfully apparent. Apple’s annual flash memory spending is expected to climb from approximately $6 billion in 2025 to $25 billion this year, while some memory prices have increased roughly 550 per cent since 2023. Suppliers who once swallowed Apple’s demands can now negotiate long-term contracts at prices that would previously have sent Cupertino’s purchasing department into cardiac arrest.
Former Apple chief executive Tim Cook complained in June that rising memory prices were becoming impossible to absorb. He admitted that product price increases were unavoidable and called for memory pricing to return to reasonable levels. Apparently, reasonable pricing looks much more attractive when someone else has the negotiating advantage.
Micron chief business officer Sumit Sadana suggested that aggressive purchasing tactics during the previous downturn had contributed to today’s shortage by discouraging investment in manufacturing capacity. He did not identify Apple directly, but said some customers had pushed prices so low that memory manufacturers could not justify expanding production. The industry’s subsequent reluctance to build additional capacity is now helping sustain the shortage.
The problem arrives at an inconvenient moment for Apple’s new chief executive, John Ternus, who took over from Cook in September. Ternus faces his first earnings call today, with analysts expecting rising memory costs to restrict profit growth to its slowest pace in six quarters. Apple’s famously efficient supply chain is suddenly looking considerably less magical.
According to LSEG estimates cited by Reuters, Apple is expected to report fiscal fourth-quarter revenue of $113.39 billion, an increase of nearly 11 per cent, while net profit is forecast to rise just six per cent to $29.04 billion. iPhone revenue is expected to increase 15 per cent to $56.54 billion, suggesting customers are still buying the company’s expensive hardware even as component costs climb.
Apple’s latest foldable iPhone Duo presents another headache. The $1,999 device reportedly sold out within minutes, but complaints about cracked internal displays have prompted replacements. Bank of America estimates that buyers face average delivery delays of 79 days, with some orders stretching into January. A company accustomed to commanding its suppliers is finding that customers cannot be supplied quite so easily.
Memory manufacturers have little reason to surrender their newfound bargaining power. SK Hynix has secured long-term agreements allowing prices to reflect changing market conditions, while demand from AI operators continues to absorb available capacity. Apple’s traditional strategy of squeezing suppliers until they squeak is now far less effective, since those suppliers can afford to walk away.
