“Unfortunately, price increases are unavoidable”. Before stepping down on September 1, Tim Cook delivered unwelcome news to Apple customers: the next generation of iPhones will most likely be more expensive than their predecessors. The reason is the sharp rise in memory chip prices, driven by booming demand from generative artificial intelligence. “The situation has become unsustainable,” the Apple CEO told The Wall Street Journal, without providing further details on the timing or the products affected.
So far, Apple has chosen to absorb the higher costs, relying on its strong margins to avoid hurting demand. In the first quarter, iPhone sales even posted a slight increase while the broader smartphone market returned to decline, weighed down by rising prices in the entry-level and mid-range segments. The launch of new models in September, however, provides an ideal opportunity to adjust prices, not only to pass on at least part of the costs already incurred, but also to prepare for further increases expected in the coming months.
The situation is unlikely to improve before mid-2027 at the earliest. At the heart of the disruption is the rapid expansion of AI infrastructure, which requires enormous amounts of memory, particularly high-bandwidth memory (HBM) chips. To meet this demand, the industry’s three dominant players — South Korea’s SK Hynix and Samsung, and US’ Micron — have redirected part of their manufacturing capacity toward these more profitable products, at the expense of DRAM and NAND memory used in smartphones, PCs, tablets and gaming consoles.
As a result, prices for those chips have soared. According to estimates from research firm TrendForce, memory prices have nearly quadrupled in just nine months. While manufacturers plan to expand capacity, bringing new production lines online takes time. More importantly, most, if not all, of those investments are aimed at AI-focused memory products. Morgan Stanley analysts expect DRAM production for AI applications to rise by 30% by 2027, while output destined for consumer electronics could decline by 15%.
According to estimates from research firm TechInsights cited by The Wall Street Journal, the DRAM and NAND memory components in the iPhone 17 Pro cost Apple around $52 at launch last September. That represented roughly 9% of the device’s total component cost — a particularly low figure by industry standards. For its successor, expected this fall, the bill could jump to $196, or 22% of the total, assuming other component costs remain broadly unchanged. DRAM would become the most expensive component in the smartphone, overtaking both the processor and camera module.
While these figures remain estimates based on market prices rather than Apple’s negotiated contracts, they illustrate the dilemma facing the company. Without a retail price increase — and excluding potential rises in other component costs — the iPhone’s gross margin would fall from 47% in September 2025 to 34% a year later. To maintain the same profitability, Apple would need to raise the price of the device by roughly $270, a premium that appears too large to pass on entirely to consumers.
More likely, the Cupertino-based giant will opt for a price increase of between $100 and $200 across its new iPhone lineup. Such an adjustment would help limit margin erosion in the short term without fully offsetting the expected rise in memory costs over subsequent quarters. The impact could therefore be twofold: lower profit per device sold and weaker sales volumes, including for older models whose prices may no longer decline as they typically do.
Until now, Apple has been relatively shielded from rising memory costs. During the first three months of the year, its hardware gross margin slipped only marginally thanks to inventory built up in advance. But that buffer will not extend beyond June, Tim Cook warned in April. To mitigate the impact, Apple’s CEO said he is prepared to use the company’s cash reserves, potentially by committing to long-term supply contracts similar to those signed by major AI companies. The decision, however, will ultimately fall to his successor, John Ternus.
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