Market dynamics between Apple and suppliers of memory chips and flash storage have witnessed a notable shift, as suppliers who were previously subjected to harsh pressure are now in a position to dictate their terms. This radical change is due to a severe global shortage of memory chips, ignited by the massive expansion of AI technology companies in building huge data centers that consume vast quantities of RAM and storage chips.
During the growth period of the iPhone, Apple topped the list of the world's largest buyers of flash chips, which gave it overwhelming leverage in supply negotiations. A Wall Street Journal report indicated that Apple, through former procurement chief Tony Blevins, used aggressive negotiation tactics that included refusing to accept shipments after ordering them at low prices when market prices fell, which caused suppliers to incur losses related to storing custom chips. The company also exerted pressure to track sales accurately and prevent suppliers from giving better deals to competitors, going as far as threatening executives at companies like SanDisk.
The AI Boom Shifts the Balance
With the acceleration of artificial intelligence, the balance of power has changed completely. According to estimates by the research firm TechInsights, operators of massive cloud infrastructure have surpassed double the volume of Apple's storage chip purchases. This double pressure led to passing a large portion of these costs to end consumers, as Apple raised the prices of more than a dozen products this year, including Mac computers, iPads, iPhones, and other products, with the company and CEO Tim Cook acknowledging the difficulty of avoiding these increases.
What is Changing Practically?
Despite raising prices, Apple was not immune to negative impacts; rising costs led to a decline in the company's profit margins from storage upgrades. For example, the gross profit for upgrading storage capacity in iPhone Pro models declined compared to last year as a result of rising prices for essential components. At the same time, SK Hynix predicted during its latest earnings call that the memory chip shortage crisis would continue until 2030, meaning that the advantage in negotiations may remain exclusive to suppliers for several years to come before the balance returns in favor of consumer electronics companies.