Tim Cook recently said price increases were “unavoidable” and described the company’s pricing as “unsustainable.” The 16-inch MacBook Pro saw its price go up by $300. The 11-inch iPad Air went from $599 to $749. Even the HomePod Mini got a $30 bump to $129. Cook squarely placed the blame at the feet of the AI industry, which is not surprising. RAMageddon has already come for your desktop PCs and gaming consoles. The Xbox has seen its price climb nearly 25 percent depending on the model, and Nothing even canceled an entire phone launch. Apple is just the most recent to jack up prices and point the finger at AI.
The price hikes are “basic economics,” says Tim Derdenger, associate professor of marketing and strategy at Carnegie Mellon University’s Tepper School of Business. As the tech industry has raced to win the AI war, “the price of RAM has skyrocketed because the memory manufacturers have reallocated their production lines to produce new HBM memory for AI data centers and away from consumer DDR5.” And when the cost of components goes up, companies tend to pass those costs on to consumers.
But this isn’t some fluke, or temporary supply chain problem. Companies are choosing data center clients over ordinary buyers because “the same chip earns far more inside an AI server than inside a consumer device,” according to Srikanth Jagabathula, professor of technology, operations, and statistics at the NYU Stern School of Business. Regardless of whether people are clamoring for more AI, and more AI data centers, or not.
Companies like OpenAI, Google, and Microsoft have thrown around unprecedented amounts of money, outbidding companies like Apple for RAM and storage, creating what even Sam Altman has admitted is a bubble. This imbalance has led to record earnings for companies like Micron, which manufactures memory chips. “This shortage is not temporary and might extend into the next few years … And because the increase is lasting rather than temporary, simply absorbing the cost is not a sustainable strategy,” Jagabathula says.
But Apple has posted record earnings for at least four quarters in a row, and its margins on hardware sales are much higher than the industry standard. Its markups are estimated to be between 30 and 40 percent, depending on the product. TechInsights and The Wall Street Journal estimate that it’s even higher on the iPhone 17 Pro, perhaps as much as 47 percent. According to TheStreet, margins on smartphones are typically between 15 and 25 percent. Data on laptop margins is harder to come by, but estimates put it between 10 percent and 25 percent for most of the industry.
Apple is actually among the last of the major tech companies to raise its prices. But why are customers being asked to foot the bill when Apple seems well-positioned to absorb these costs?
Ari Lightman, professor of digital media and marketing at Carnegie Mellon University’s Heinz College, described it as “spot on” to say it’s hard to square Apple’s public financial statements and Tim Cook’s description of its pricing as unsustainable. He said raising prices was “without a doubt” about appeasing shareholders who demand constant growth.
Lightman points to Apple’s lagging behind in the AI race, the uncertainty around installing a new CEO in John Ternus, and the lack of a hit new product category as putting pressure on the company.
“There’s a lot of things that investors can really beat them up on,” he said, and “if they’re going to be selling the stock and promoting the stock to large institutional investors … in terms of being one of the most valuable companies, then they have to tell a really good story.” And that story is one of huge margins and profits even in the face of rising costs and AI-driven supply constraints.
The AI boom is touching almost every facet of our lives, but this week, it came particularly hard for our wallets with the announcement of another round of price hikes for the Xbox, and even the Arduino got caught up in the memory crunch. I spent hours talking to marketing and business experts, exchanging emails and phone calls, and no one could give me a satisfying answer to why the price of popping up more data centers should be consumers’ costs to bear.
The RAM Shortage: How We Got Here
To understand the current predicament, it helps to look at the memory market over the past decade. DRAM and NAND flash prices have historically cycled between boom and bust, driven by supply-demand imbalances and the construction of new fabs. The last major shortage occurred in 2017-2018, when smartphone and server demand outpaced supply, leading to price increases of 50% or more. That cycle eventually corrected as manufacturers added capacity. But the AI boom is different. It is not a temporary spike in demand for consumer electronics; it’s a structural shift in how memory is allocated.
High Bandwidth Memory (HBM) is a specialized type of DRAM stacked vertically to deliver extremely high data transfer rates. It is essential for AI training and inference workloads running on graphics processing units (GPUs) from Nvidia and AMD. HBM requires advanced packaging and different manufacturing processes than standard DDR5 or LPDDR5 memory used in laptops, desktops, and smartphones. As AI data centers expand at breakneck speed—with companies like Microsoft, Google, and Meta each spending tens of billions of dollars annually on infrastructure—memory makers like Samsung, SK Hynix, and Micron have shifted production lines to prioritize HBM. The result: a supply crunch for consumer-grade RAM.
According to industry analysts, the price of 16GB DDR5 modules has more than doubled over the past year. LPDDR5, commonly used in thin-and-light laptops and tablets, has seen similar increases. Apple uses customized unified memory architecture, but its components still rely on the same underlying DRAM supply. The company’s decision to pass on these costs has implications for its entire product lineup, including the upcoming Mac Pro and Vision Pro.
Are Record Earnings Enough to Absorb the Blow?
Apple’s financial position is the envy of the corporate world. The company reported quarterly revenue of $90.8 billion in its most recent fiscal quarter, with net income of $23.6 billion. Its gross margin on hardware products hovers around 36%, compared to industry averages of 15-25%. Apple also holds more than $150 billion in cash and marketable securities. So why can’t it simply eat the cost of higher RAM?
Experts point to Wall Street’s insatiable appetite for growth. Apple’s stock price has been under pressure as iPhone sales plateau, and the company has not introduced a new blockbuster product category since the Apple Watch in 2015. Services revenue continues to grow but not fast enough to offset hardware weakness. Raising prices protects margins and signals to investors that Apple can maintain profitability even in a tough environment. “If Apple lowers margins to absorb costs, they will be penalized by the market,” says Lightman. “Shareholders want to see consistent, if not increasing, profitability. Any signal that margins are under threat would be catastrophic for the stock.”
The situation is further complicated by Apple’s relatively late entry into the AI race. The company has been slow to release generative AI features, and its upcoming Apple Intelligence platform is still in beta. Competitors like Samsung have already embedded on-device AI into their flagship phones, while Google and Microsoft have integrated AI into their ecosystems. This perceived lag adds uncertainty about future revenue streams, making current hardware margins even more critical.
Who Else Is Affected?
Apple is far from alone. Microsoft has raised prices on Surface devices by up to 20%. Dell and HP have introduced surcharges on business laptops. Even the gaming console market has been hit: Sony raised the PlayStation 5 price in most regions in 2023, and Microsoft followed suit with the Xbox Series X and S this year. The Raspberry Pi, a low-cost single-board computer beloved by hobbyists, saw its price increase by $10 due to memory costs. Nothing, the smartphone startup founded by Carl Pei, canceled the launch of its Phone (3) entirely, citing unrealistic component pricing.
Automakers are also feeling the pinch. Modern vehicles use dozens of memory chips for infotainment, advanced driver-assistance systems, and electric powertrain control. Ford and General Motors have warned that rising chip costs could delay their EV ramp-up plans. The memory shortage is rippling across industries far beyond consumer electronics.
In the server market, prices have surged even more dramatically. Enterprise-grade SSDs and DRAM modules have increased by 30-50% over the past year. Cloud providers like AWS, Azure, and Google Cloud have passed these costs to customers, raising prices for virtual machines and storage services. This in turn affects every business that relies on the cloud, from startups to multinational corporations.
A Long-Term Shift
Unlike previous shortages, this one shows no signs of abating. Memory manufacturers are investing in new HBM production lines, but those facilities take years to build and come online. SK Hynix plans to spend $15 billion on a new HBM fab in the US, but it won’t be operational until 2028. In the meantime, consumer memory will remain scarce and expensive. This has implications for the entire electronics industry. Laptop and desktop prices are unlikely to come down anytime soon. Smartphones may see further price hikes, especially as the shift to on-device AI drives demand for larger amounts of faster RAM.
Apple’s recent moves are a harbinger of things to come. The company has always justified its premium pricing with superior hardware and software integration. But now that premium is being stretched further as external forces push up component costs. Consumers face a tough choice: pay more for the Apple ecosystem, or switch to lower-priced alternatives that may also be subject to the same cost pressures. The era of cheap, abundant RAM appears to be over.
As one industry insider put it: “We’ve been spoiled by years of falling memory prices. That era is done. AI is going to gobble up every bit of manufacturing capacity it can get, and consumers are going to have to compete with data centers for the scraps.”
Source:The Verge News