For a long time, Apple (AAPL.US) has been a procurement giant in the consumer electronics field wielding absolute authority, but now, this advantage is beginning to erode. Currently, artificial intelligence (AI) companies are investing heavily in data centers, engaging in a buying spree for chips, memory chips, and other core components, frequently outbidding Apple in procurement auctions. Suppliers who once dedicated their efforts to the iPhone maker now hold the bargaining power, not only driving up component prices but also consistently squeezing Apple's traditionally generous profit margins. Apple CEO Tim Cook recently admitted during an earnings call that the company is facing related pressures, mentioning constraints on chip supply and the significant surge in memory chip costs. Despite strong iPhone sales and record-breaking company profits, these remarks still weighed on the stock price, with Apple's shares ultimately closing flat that day.
This shift in the landscape is most evident at the world's top advanced chip manufacturer, Taiwan Semiconductor Manufacturing Company (TSM.US). Nvidia (NVDA.US) recently supplanted Apple as TSMC's largest customer, a phenomenon that highlights how demand from the AI sector is reshaping the client structure of the semiconductor industry. The memory chip sector has become another major point of contention. Companies like OpenAI, Google (GOOGL.US), Meta (META.US), and Microsoft (MSFT.US) are collectively spending hundreds of billions of dollars to build AI infrastructure, directly leading to sustained tightness in the supply of Dynamic Random-Access Memory (DRAM) and NAND flash memory. These two types of components are widely used in various electronic devices, from smartphones to servers. Technology market research firm TechInsights estimates that by the end of this year, DRAM prices could triple compared to 2023 levels, while NAND price increases will also exceed twofold.
The impact of rising costs on Apple is already tangible. TechInsights calculates that memory chips alone could increase the bill of materials for Apple's next-generation standard iPhone by approximately $57—a significant cost increase for a device priced under $800. For years, leveraging its massive purchasing scale and stringent supply chain management, Apple has consistently dominated its relationships with suppliers, frequently renegotiating prices and even terminating partnerships at will. However, clients in the AI field are willing to pay premiums, lock in long-term supply agreements, and secure purchase commitments in advance, granting memory chip manufacturers like Samsung Electronics (SSNLF.US) and SK Hynix greater bargaining power than ever before.
Apple's competitive pressures extend to the internal competition for resources and talent at its suppliers. Engineers previously focused on developing smartphone displays, sensors, and various components are increasingly being reassigned to work on specialized materials and hardware for AI chips. Nevertheless, Apple retains its own advantages. Suppliers indicate that partnering with Apple remains an industry benchmark, and Apple's deeply integrated model of hardware and software provides it with room for adjustment. Apple might also focus more on promoting storage upgrade configurations, a sales strategy with particularly high margins; furthermore, the company could seek alternative manufacturers for processors with lower technical barriers.
Despite this, analysts predict that even if costs continue to rise, Apple will likely maintain stable pricing for its iPhone lineup this year. This suggests that the booming AI industry may force Apple, for the first time in many years, to absorb the cost pressures internally rather than passing them on to consumers.
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