AI race squeezes global memory supply

Apple rounded out a week of Big Tech earnings with another strong performance, largely thanks to sales of the iPhone 17. Outgoing CEO Tim Cook said demand for the phones has been “extraordinary,” but he warned that increasing costs for memory could have an impact on the business moving forward.

Memory chips, like RAM, are an important component in all kinds of consumer electronics including phones, PCs, and car info-tainment systems. But they’ve been in short supply as memory makers shift to a higher-paying customer: AI data centers.

The memory market has always been volatile, said Willy Shih, a professor at Harvard Business School.

“There has been this boom and bust cycle that goes back 30, 40, years,” he said.

Demand surges when a new tech product gets released, manufacturers build more capacity, creating a glut, rinse, and repeat.

But the AI shock is of a different magnitude.

“An AI server will typically have … maybe 10 times as much memory as a conventional data center server,” Shih said.

So the three big memory makers have pulled back on the consumer market.

Gamers who build custom PC’s felt the pain first, said Ryan Reith at IDC market research. Prices for some DIY memory kits were tripling late last year.

“Think about that as the precursor to what's going to happen for the mass market,” he said.

Big brands like Apple locked in memory supplies before the worst of the surge, but will be renegotiating contracts at higher prices this year.

“A lot of that cost is going to get passed through to the consumer,” Reith said. “And it's only going to intensify as we get into the second half of this year.”

IDC predicts the global device market will shrink significantly until memory supplies start to rebound next year.

But Apple could still emerge a winner, said analyst Neil Cybart at Above Avalon.

“They’re the strongest player, that they have the strongest portfolio, they are putting orders out there that are significant,” he said.

Without that bargaining power, Cybart said smaller players will likely pay even higher prices for memory — if they can get any at all.