Supply Chain Legend Tim Cook Faces a New Challenge: Apple’s Memory Crisis
Apple is facing component shortages intensified by the artificial-intelligence boom and is urgently seeking solutions. Apple shares plunged 10% in Friday trading. During Tim Cook’s nearly three decades at Apple, he transformed the company’s supply chain and guided it through tariffs, pandemic-related factory shutdowns and other major obstacles. But ironically, as Cook prepares to step down as CEO, Apple (AAPL) is confronting the most severe supply-chain bottleneck in its history—and there appears to be no clear solution. Thursday was Cook’s final Apple earnings call as chairman. John Ternus will succeed him in September. Although Apple reported fiscal third-quarter revenue and profit above market expectations, weak guidance for the September quarter sent the stock down 10% on Friday. Memory-cost pressure was also visible in Apple’s margins: Excluding the effect of tariff rebates, its gross margin actually fell 120 basis points sequentially. The company said on its earnings call that the impact of supply constraints is expected to “increase significantly quarter over quarter.” Demand for the iPhone and Mac has exceeded expectations, creating bottlenecks in the advanced chips that power those devices. A global shortage of dynamic random-access memory, or DRAM, driven by the AI boom has already forced Apple to raise prices for the Mac and iPad, while the iPhone could also face a price increase. William Kerwin, a senior equity analyst at Morningstar, said the unprecedented success of the iPhone 17 cycle has intensified these pressures. Growth in the September quarter is constrained because Apple cannot meet demand quickly enough. “I think this is going to persist into 2027 and beyond because global chip supply is limited and AI demand is enormous,” Kerwin said. Apple’s current logistics challenge is unlike anything the company has faced before. When Cook joined Apple in 1998, his first major initiative was to implement a just-in-time inventory system by shortening the time unsold products remained in storage, consolidating suppliers and outsourcing manufacturing. Apple’s strategy now is the exact opposite. Inventory on its balance sheet swelled to USD 11.1 billion last quarter, nearly doubling from the same period a year earlier. The company is stockpiling components in advance, but the benefit is expected to fade over the next several quarters. “We’ve been pulling in ahead,” Cook said on the earnings call. “But at some point, there’s a limit to that.” According to media reports, when the iPod nano launched in 2005, Cook locked in Samsung’s flash-memory chips at a steep discount by paying a huge amount upfront. He reportedly bought 40% of the company’s supply, cornering the global memory market. The AI boom has completely reversed that dynamic. The “Big Three” suppliers—Micron (MU), SK hynix (SKHY) and Samsung (KR:005930)—now have unprecedented pricing power. AI infrastructure companies, rather than Apple, are now the largest buyers of memory chips, forcing Apple to seek new suppliers. “There are essentially three suppliers in the DRAM market in terms of supply sources,” Cook said on the earnings call. “Obviously, if there were more suppliers ... that would help us both on supply and on pricing.” Kerwin believes the supply constraints will be most severe when the September iPhone 17 cycle ends, after which conditions should improve. “I do think Apple has the ability to plan for higher supply when it launches the new iPhone 18 series in the fall,” Kerwin said. He added that a large amount of new memory-chip capacity is expected to come online in late 2027 and 2028, which “at least should provide some relief for memory prices.” Needham analyst Laura Martin is more pessimistic. In a report Friday, she wrote that Apple’s “economics are under pressure from structurally rising input costs and supply-chain constraints, neither of which we believe will improve in the near term.” She said it could take longer for memory costs to decline. “We are concerned that Apple’s component costs will rise substantially over the next several quarters—or years,” Martin said.
Apple shares plunged 10% in Friday trading.
During Tim Cook’s nearly three decades at Apple, he transformed the company’s supply chain and guided it through tariffs, pandemic-related factory shutdowns and other major obstacles.
But ironically, as Cook prepares to step down as CEO, Apple (AAPL) is confronting the most severe supply-chain bottleneck in its history—and there appears to be no clear solution. Thursday was Cook’s final Apple earnings call as chairman. John Ternus will succeed him in September.
Although Apple reported fiscal third-quarter revenue and profit above market expectations, weak guidance for the September quarter sent the stock down 10% on Friday. Memory-cost pressure was also visible in Apple’s margins: Excluding the effect of tariff rebates, its gross margin actually fell 120 basis points sequentially.
The company said on its earnings call that the impact of supply constraints is expected to “increase significantly quarter over quarter.” Demand for the iPhone and Mac has exceeded expectations, creating bottlenecks in the advanced chips that power those devices. A global shortage of dynamic random-access memory, or DRAM, driven by the AI boom has already forced Apple to raise prices for the Mac and iPad, while the iPhone could also face a price increase.
William Kerwin, a senior equity analyst at Morningstar, said the unprecedented success of the iPhone 17 cycle has intensified these pressures. Growth in the September quarter is constrained because Apple cannot meet demand quickly enough.
“I think this is going to persist into 2027 and beyond because global chip supply is limited and AI demand is enormous,” Kerwin said.
Apple’s current logistics challenge is unlike anything the company has faced before. When Cook joined Apple in 1998, his first major initiative was to implement a just-in-time inventory system by shortening the time unsold products remained in storage, consolidating suppliers and outsourcing manufacturing.
Apple’s strategy now is the exact opposite. Inventory on its balance sheet swelled to USD 11.1 billion last quarter, nearly doubling from the same period a year earlier. The company is stockpiling components in advance, but the benefit is expected to fade over the next several quarters.
“We’ve been pulling in ahead,” Cook said on the earnings call. “But at some point, there’s a limit to that.”
According to media reports, when the iPod nano launched in 2005, Cook locked in Samsung’s flash-memory chips at a steep discount by paying a huge amount upfront. He reportedly bought 40% of the company’s supply, cornering the global memory market.
The AI boom has completely reversed that dynamic. The “Big Three” suppliers—Micron (MU), SK hynix (SKHY) and Samsung (KR:005930)—now have unprecedented pricing power. AI infrastructure companies, rather than Apple, are now the largest buyers of memory chips, forcing Apple to seek new suppliers.
“There are essentially three suppliers in the DRAM market in terms of supply sources,” Cook said on the earnings call. “Obviously, if there were more suppliers ... that would help us both on supply and on pricing.”
Kerwin believes the supply constraints will be most severe when the September iPhone 17 cycle ends, after which conditions should improve.
“I do think Apple has the ability to plan for higher supply when it launches the new iPhone 18 series in the fall,” Kerwin said. He added that a large amount of new memory-chip capacity is expected to come online in late 2027 and 2028, which “at least should provide some relief for memory prices.”
Needham analyst Laura Martin is more pessimistic. In a report Friday, she wrote that Apple’s “economics are under pressure from structurally rising input costs and supply-chain constraints, neither of which we believe will improve in the near term.” She said it could take longer for memory costs to decline.
“We are concerned that Apple’s component costs will rise substantially over the next several quarters—or years,” Martin said.