Never seen anything like it, says CEO Tim Cook as Apple increases prices big time
Apple has raised prices of iPads and MacBooks by as high as Rs 1 lakh due to rising memory costs. Apple CEO Tim Cook has compared the current memory crisis to a "hundred-year flood." And here is the full picture.
On Thursday, Apple’s online store went offline. Usually, this happens right before a new product is announced by the company. But this time things were different. Apple was raising prices. The Cupertino giant hiked the prices of its iPads and MacBooks by up to Rs 1 lakh. Why? The rise in memory prices due to demand from AI companies. Something that even Apple is not immune to.
You see, every electronic device, be it your smartphone, laptop or a server in an AI data centre needs memory to run. And this is where the problem arises. Since AI models have grown in popularity, companies like Google, OpenAI, and Anthropic are trying to grab as much supply of memory as possible. This, in turn, has reduced the supply of RAM for consumer devices – like your iPhone.
As economics tells us – more demand, less supply leads to higher prices.
A hundred-year flood
And the situation has reached such a stage that companies like Apple have no choice but to raise prices to cover this cost. Just a week ago, Apple CEO Tim Cook admitted that he had never seen such a drastic rise in prices for a single component in the tech industry. He told the Wall Street Journal, “This is a hundred-year flood.” He added, “I’ve never seen anything like it in any area in over 40 years.”
To give you some context, AI companies – who are spending billions of dollars – are willing to pay high prices for memory chips. This essentially forces out consumer brands as they may not be able to afford the same prices. And in turn, memory suppliers focus more on AI chips instead. For example, Micron, one of the three big memory suppliers, decided to shut down its consumer memory division entirely to focus on AI demand.
This means that not only are the prices already increasing, but the production of consumer memory chips like RAM and NAND is also decreasing, leading to a further shortage.
Tim Cook has not been shy of addressing this exact issue, claiming that memory suppliers were asking for higher prices. He said, “There’s less supply at a time when consumers want devices and the memory guys are passing along huge price increases.”
The Apple CEO believes that to manage this “unsustainable” situation, memory suppliers must bring more production to consumer chips. He explained, “We definitely need memory pricing and supply to return to reasonable levels for consumer products. That’s the bottom line.”
Memory suppliers not willing to shift focus?
But it seems that not everyone may be willing to do what Apple wants. Micron Chief Business Officer Sumit Sadana recently said that the company couldn’t make investments in 2023 after customers exploited a downturn in the memory market.
He told the Wall Street Journal “We told a couple of the customers who were being very aggressive with pricing at that time that this is not constructive." Sumit added, “A lot of the industry investments got shut down in 2023 because of really poor pricing and really poor margins.”
The Micron senior executive did not name Apple. There have been reports in the past regarding Apple using its high orders for memory chips as leverage against suppliers to negotiate low prices – something it reportedly also does when it comes to chipset production. But it seems that the Cupertino giant’s orderbook is no match to the orders given by AI companies.
And this is believed to be the reason for the price hike. Apple said in a statement to India Today Tech, “We have never seen a component price increase this much, this quickly.” The company confirmed that it had “reached a point where we need to begin raising prices on a number of products.”
It is rumoured that the company may be forced to hike prices of more devices in the coming days, including iPhones.
The memory market is largely dominated by three players – Micron, Samsung, and SK Hynix. The three of them are now valued at over $1.3 trillion each. However, Apple seems to be open to finding new options that may break this consolidation, potentially including Chinese players. Tim Cook said, “I think everything needs to be on the table.” As an American company, Apple would likely need a license from US officials to work with a Chinese supplier.
But Apple is far from the only one facing this memory crunch. Microsoft raised prices of its Xbox consoles just hours after Apple’s price hike. In the smartphone world, there have been multiple price hikes by companies like Realme, OnePlus, and Vivo. On the other hand, Nothing announced that it had decided to cancel a successor to the CMF Phone 2 Pro due to the changing market conditions as the economics of the device would not have made sense.
On Thursday, Apple’s online store went offline. Usually, this happens right before a new product is announced by the company. But this time things were different. Apple was raising prices. The Cupertino giant hiked the prices of its iPads and MacBooks by up to Rs 1 lakh. Why? The rise in memory prices due to demand from AI companies. Something that even Apple is not immune to.
You see, every electronic device, be it your smartphone, laptop or a server in an AI data centre needs memory to run. And this is where the problem arises. Since AI models have grown in popularity, companies like Google, OpenAI, and Anthropic are trying to grab as much supply of memory as possible. This, in turn, has reduced the supply of RAM for consumer devices – like your iPhone.
As economics tells us – more demand, less supply leads to higher prices.
A hundred-year flood
And the situation has reached such a stage that companies like Apple have no choice but to raise prices to cover this cost. Just a week ago, Apple CEO Tim Cook admitted that he had never seen such a drastic rise in prices for a single component in the tech industry. He told the Wall Street Journal, “This is a hundred-year flood.” He added, “I’ve never seen anything like it in any area in over 40 years.”
To give you some context, AI companies – who are spending billions of dollars – are willing to pay high prices for memory chips. This essentially forces out consumer brands as they may not be able to afford the same prices. And in turn, memory suppliers focus more on AI chips instead. For example, Micron, one of the three big memory suppliers, decided to shut down its consumer memory division entirely to focus on AI demand.
This means that not only are the prices already increasing, but the production of consumer memory chips like RAM and NAND is also decreasing, leading to a further shortage.
Tim Cook has not been shy of addressing this exact issue, claiming that memory suppliers were asking for higher prices. He said, “There’s less supply at a time when consumers want devices and the memory guys are passing along huge price increases.”
The Apple CEO believes that to manage this “unsustainable” situation, memory suppliers must bring more production to consumer chips. He explained, “We definitely need memory pricing and supply to return to reasonable levels for consumer products. That’s the bottom line.”
Memory suppliers not willing to shift focus?
But it seems that not everyone may be willing to do what Apple wants. Micron Chief Business Officer Sumit Sadana recently said that the company couldn’t make investments in 2023 after customers exploited a downturn in the memory market.
He told the Wall Street Journal “We told a couple of the customers who were being very aggressive with pricing at that time that this is not constructive." Sumit added, “A lot of the industry investments got shut down in 2023 because of really poor pricing and really poor margins.”
The Micron senior executive did not name Apple. There have been reports in the past regarding Apple using its high orders for memory chips as leverage against suppliers to negotiate low prices – something it reportedly also does when it comes to chipset production. But it seems that the Cupertino giant’s orderbook is no match to the orders given by AI companies.
And this is believed to be the reason for the price hike. Apple said in a statement to India Today Tech, “We have never seen a component price increase this much, this quickly.” The company confirmed that it had “reached a point where we need to begin raising prices on a number of products.”
It is rumoured that the company may be forced to hike prices of more devices in the coming days, including iPhones.
The memory market is largely dominated by three players – Micron, Samsung, and SK Hynix. The three of them are now valued at over $1.3 trillion each. However, Apple seems to be open to finding new options that may break this consolidation, potentially including Chinese players. Tim Cook said, “I think everything needs to be on the table.” As an American company, Apple would likely need a license from US officials to work with a Chinese supplier.
But Apple is far from the only one facing this memory crunch. Microsoft raised prices of its Xbox consoles just hours after Apple’s price hike. In the smartphone world, there have been multiple price hikes by companies like Realme, OnePlus, and Vivo. On the other hand, Nothing announced that it had decided to cancel a successor to the CMF Phone 2 Pro due to the changing market conditions as the economics of the device would not have made sense.
