Apple and Micron both have a point about the memory shortage and the AI buildout #
Apple ramped up its prices for MacBooks and iPads, including Apple TV, HomePod, and Vision Pro amid surging memory prices due to a massive shortage. Apple CEO Tim Cook indirectly blamed the companies that supply memory chips for use in its hardware portfolio. One of these companies is Micron.
'There's less supply at a time when consumers want devices and the memory guys are passing along huge price increases,' Cook had recently told The Wall Street Journal, describing the price hikes as 'unavoidable' due to an 'unsustainable' situation.
Apple had reportedly said the AI data centre growth 'created an extraordinary surge' in memory and storage demand, but a Micron exec shifted the blame to Apple.
In a recent interview with The Journal, Micron's chief business officer Sumit Sadana indicated without directly naming Apple that aggressive buyers created the shortage now squeezing customers.
When memory prices tanked in 2023, Sadana had argued that major clients used the price collapse to negotiate rock-bottom prices, impacting supplier margins right when they required cashflow to ramp up production capacity.
Note that memory and storage now cost around 4X compared with only three quarters ago, according to data compiled by Counterpoint Research. Meanwhile, memory prices rose by up to 98% in Q1, and are poised to climb by an additional 58% to 63% during the current quarter, according to TrendForce estimates.
Micron had Warned Aggressive Buying of Chips is Not Constructive #
Sadana had reportedly said that his company had informed several of its clients engaging in aggressive pricing back in 2023 that the move was not constructive.
'A lot of the industry investments got shut down in 2023 because of really poor pricing and really poor margins,' Sadana had explained. Even Micron's own gross margins had turned sharply negative that year, troughing at minus 17.8% during its fiscal Q3.
Although Sadana never mentioned Apple, the iPhone maker has a reputation for securing favourable components from suppliers via long-term contacts, and it happens to be one of Micron's customers.
Both Apple and Micron Make Sense #
Cook's view that the shortage is intensifying amid the rapid AI infrastructure buildout holds. AI data centers use high-bandwidth memory, and each gigabyte of it reportedly uses nearly 3X the factory capacity of the typical memory installed in a laptop. That memory is on track to consume 22% of the major suppliers' total memory production by 2026-end, up from 18% a year earlier.
At the same time, Sadana's view also makes sense because when margins declined in 2023, memory giants could not justify building new capacity. However, when AI demand surged, there were no additional factories that could match demand, thus creating a shortage.
The Micron stock has gained a whopping 304% this year, attributable to the company's Q3 revenue jump of 345.7% to $41.46 billion with a recorded gross margin of 84.6%. Meanwhile, the Apple stock has returned a meagre 6.5% year-to-date, due to multiple headwinds, including the company's AI strategy.
Despite hiking prices, Apple did not add extra storage or memory to the affected models, meaning buyers are paying more for the same specs. The company also revised down its June-quarter gross margin to 47.5%–48.5%, from 49.3% a year earlier, as its product margin fell to 38.7% in the March quarter, partly due to higher memory costs.
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