Apple faces iPhone pricing challenge, supply crunch as AI demand deepens global memory chip shortage

Apple (AAPL) reported blowout archetypal 4th results aft the doorbell connected Thursday, connected the backmost of all-time grounds iPhone sales, which, successful turn, drove all-time grounds gross for the company.

But it wasn't each bully quality successful Cupertino.

Apple CEO Tim Cook acknowledged that the planetary representation spot shortage is hitting the company, saying helium expects to spot an interaction successful the existent 4th and beyond. The institution is projecting Q2 margins betwixt 48% and 49%, astir level implicit the anterior 4th and akin to the margins during the past 2 years successful the aforesaid period.

But representation spot prices, Cook said, are expected to summation “significantly” successful the coming quarters, which could unit Apple to either swallow the accrued costs — cutting into its aboriginal margins — oregon rise the terms of its phones.

The institution is besides contending with a proviso shortage of the precocious processors that powerfulness its iPhone 17, arsenic request for tech hardware of astir immoderate signifier and size from the AI build-out pressures planetary proviso chains.

“We exited the December 4th with precise thin transmission inventory owed to that staggering level of demand. And based connected that, we're successful a proviso pursuit mode to conscionable the precise precocious levels of lawsuit demand,” Cook explained.

“The constraints that we person are driven by the availability of the precocious nodes that our [systems-on-a-chip] are produced on. At this time, we're seeing little flexibility successful the proviso concatenation than normal.”

Apple’s Q1 income topped retired astatine $143.8 billion, good up of Wall Street estimates of $138.4 billion, with the iPhone accounting for $85.3 cardinal of the apical enactment number.

“The request for iPhone was simply staggering, with gross increasing 23% year-over-year and all-time records crossed each geographic segment,” Cook said connected the company’s net call.

But proviso constraints could restrict however galore iPhones Apple tin physique and merchantability successful the coming quarters, putting an artificial headdress connected gross for now.

Apple’s representation spot issues tin beryllium traced backmost to the tech industry’s worldwide AI information halfway build-out.

AI information centers are made up of hundreds of large, rectangular server racks, which themselves incorporate thousands of servers. Each server is fundamentally an individual, high-powered machine that communicates with each the different servers connected the rack.

Like immoderate high-speed computer, each server requires memory, and due to the fact that tech companies are racing to physique information centers arsenic accelerated arsenic they can, they’re buying up immense amounts of representation chips.

The occupation for Apple, and each different tech institution not successful the information halfway game, is that information halfway representation uses the aforesaid components arsenic representation utilized successful smartphones, PCs, cars, aesculapian equipment, oregon thing other that’s a computer, creating scarcity, which drives up representation prices.