Apple CEO Tim Cook warns AI-driven price increases are unavoidable — says company is trying its best but ‘the situation has become unsustainable’
Apple CEO Tim Cook has warned in an interview with the Wall Street Journal that price hikes on Apple products are unavoidable because the price of memory has increased to a degree that the company must now pass on increases to customers. The outgoing chief executive of Apple did not disclose the scope of the increases or when to expect them to happen, though the warning itself is noteworthy.
Cook said in the interview that price increases had become necessary due to skyrocketing prices of LPDDR and 3D NAND memory, which the company uses in its PCs, smartphones, tablets, and other products. He noted that Apple had attempted to offset rising component costs and protect customers from higher prices, but indicated in the interview that the company could no longer absorb the increases indefinitely. While Cook declined to discuss timing or the magnitude of the planned price hikes, some Apple products may see higher prices sooner rather than later. The company already raised the base price of its Mac Mini last month and eliminated its highest-end model.
TechInsights estimates that Apple will need to hike the price of a flagship iPhone Pro model by about $270 to maintain its current gross margins, which could push flagship iPhone pricing into a substantially higher price band. To make matters worse, Apple faces rising DRAM requirements as it expands memory-hungry on-device AI capabilities.
Apple is a unique company in the sense that it is both one of the world’s largest suppliers of smartphones and one of the industry’s biggest PC OEMs. Still, its Mac business is negligible compared to the iPhone business.
Memory makers are more inclined to ship non-volatile NAND memory to smartphone makers as they can ship LPDDR with it, according to Nelson Duann, a senior vice president of Silicon Motion, speaking in an interview with Tom’s Hardware. If Duann is correct that NAND makers prefer smartphones because they can bundle NAND and LPDDR sales, then Apple should be among the most favored customers in the industry, not among the disadvantaged ones.
Also, keep in mind that historically Apple has used long-term supply agreements, prepayments, equipment financing, and advance capacity reservations to secure key components, including DRAM, NAND flash, displays, advanced packaging, and even semiconductor foundry capacity. As one of the world’s largest electronics manufacturers and semiconductor buyers, Apple is among the few companies capable of negotiating with memory suppliers from a position of considerable strength.
As a result, Apple is not in a situation where it cannot get enough memory; it can probably get more than other suppliers of smartphones and PCs, but it surely has to buy both DRAM and NAND at a premium. That said, it is not surprising that Apple will have to increase prices; what remains to be seen is the magnitude of the increase.
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