Apple has issued a warning that rising memory chip costs are beginning to pressure its profitability in the current quarter, highlighting a significant shift in the semiconductor industry. This development comes as South Korean chip giants Samsung Electronics and SK Hynix are increasingly diverting their production capacities toward high-margin memory chips designed for artificial intelligence workloads.
Impact on Apple's Financial Performance
During a recent earnings call, Apple CEO Tim Cook acknowledged that market pricing for memory chips has increased significantly. While the memory shortage had minimal impact on the holiday quarter ending December 31, which traditionally marks Apple's strongest sales period, Cook anticipates more substantial effects in the current quarter. This situation arises as demand for Apple's latest iPhone 17 has surged, particularly in key markets like China and India.
Cook described the demand for the device in the December quarter as "staggering," though he declined to comment on whether Apple might adjust product pricing in response to the memory chip scarcity. The company's need for memory chips continues to grow, potentially exacerbating the financial strain caused by these price increases.
Industry-Wide Chip Shortage and AI Prioritization
The comments from Apple follow similar warnings from Samsung Electronics and SK Hynix, which collectively control approximately two-thirds of the DRAM chip market. These manufacturers have indicated that computer and smartphone companies are likely to bear the brunt of a worsening shortage of DRAM chips used in their products. The consequences include growing margin pressures and potential disruptions in supply chains.
The global race to build AI infrastructure has prompted chipmakers to reallocate manufacturing capacity toward high-bandwidth memory chips for AI servers. This shift is squeezing the supply of conventional DRAM chips, creating a significant bottleneck for the broader electronics industry.
Conservative Production Strategies
Compounding the shortage is the fact that chipmakers, having experienced setbacks from aggressive capacity expansions after 2017, have adopted more conservative approaches to adding new production lines. Samsung has stated that such expansions will remain limited in 2026 and 2027, contributing to the ongoing supply constraints.
As the crunch persists, some manufacturers have already begun adjusting their products to cope with the shortage and surging prices. SK Hynix noted on its earnings conference call that due to the recent surge in memory chip prices, PC and mobile customers are adjusting purchase volumes. Some are taking a more conservative approach to shipment plans or considering modifications to memory chip specifications in price-sensitive product ranges.
Market Forecasts and Industry Adjustments
Research firms IDC and Counterpoint have revised their forecasts, now expecting global smartphone sales to shrink by at least 2% this year, reversing earlier predictions of growth. Similarly, the PC market is projected to contract by at least 4.9% in 2026, following an 8.1% growth last year, according to IDC estimates.
Samsung, the world's second-largest smartphone maker, is also preparing for the impact of the chip shortage. The company's mobile business profit declined by 10% in the fourth quarter, and executives have warned of a "challenging year" in 2026. They anticipate flat global smartphone shipments with potential downward adjustments due to memory chip price pressures.
Strategic Shifts in Chip Production
Samsung prioritized supplying server customers in the fourth quarter and plans to continue increasing its focus on AI-related products. This strategic move could lead to further constraints in the output of conventional memory chips. Samsung's aggressive push into AI memory chips is part of its effort to narrow the market share gap with SK Hynix in this lucrative segment.
SK Hynix, a leading chip supplier for Nvidia, dominated the HBM chip market last year with a 61% share, followed by Samsung at 19% and Micron at 20%, according to Macquarie Equity Research. HBM chips are essential components used in building advanced AI chipsets, underscoring the strategic importance of this shift in production priorities.
The ongoing adjustments in the semiconductor industry highlight the complex interplay between technological advancements, market demands, and supply chain dynamics. As companies like Apple navigate these challenges, the broader implications for consumer electronics and global tech markets remain significant.
