Tim Cook recently warned that price increases were “unavoidable” and described Apple’s pricing as “unsustainable.” The 16-inch MacBook Pro jumped $300, the 11-inch iPad Air rose from $599 to $749, and even the HomePod Mini got a $30 bump to $129. Cook squarely placed the blame on the AI industry, which is not surprising. RAMageddon has already hit desktop PCs and gaming consoles. The Xbox saw its price climb nearly 25 percent depending on the model, and Nothing even canceled an entire phone launch. Apple is just the most recent to jack up prices and point the finger at AI.

The price hikes are “basic economics,” says Tim Derdenger, associate professor of marketing and strategy at Carnegie Mellon University’s Tepper School of Business. As the tech industry has raced to win the AI war, “the price of RAM has skyrocketed because the memory manufacturers have reallocated their production lines to produce new HBM memory for AI data centers and away from consumer DDR5.” And when the cost of components goes up, companies tend to pass those costs on to consumers.

But this isn’t some fluke, or temporary supply chain problem. Companies are choosing data center clients over ordinary buyers because “the same chip earns far more inside an AI server than inside a consumer device,” according to Srikanth Jagabathula, professor of technology, operations, and statistics at the NYU Stern School of Business. Regardless of whether people are clamoring for more AI, and more AI data centers, or not.

Companies like OpenAI, Google, and Microsoft have thrown around unprecedented amounts of money, outbidding companies like Apple for RAM and storage, creating what even Sam Altman has admitted is a bubble. This imbalance has led to record earnings for companies like Micron, which manufactures memory chips. “This shortage is not temporary and might extend into the next few years … And because the increase is lasting rather than temporary, simply absorbing the cost is not a sustainable strategy,” Jagabathula says.

But Apple has posted record earnings for at least four quarters in a row, and its margins on hardware sales are much higher than the industry standard. Its markups are estimated to be between 30 and 40 percent, depending on the product. TechInsights and The Wall Street Journal estimate that it’s even higher on the iPhone 17 Pro, perhaps as much as 47 percent. According to TheStreet, margins on smartphones are typically between 15 and 25 percent. Data on laptop margins is harder to come by, but estimates put it between 10 percent and 25 percent for most of the industry.

Apple is actually among the last of the major tech companies to raise its prices. But why are customers being asked to foot the bill when Apple seems well-positioned to absorb these costs?

Ari Lightman, professor of digital media and marketing at Carnegie Mellon University’s Heinz College, described it as “spot on” to say it’s hard to square Apple’s public financial statements and Tim Cook’s description of its pricing as unsustainable. He said raising prices was “without a doubt” about appeasing shareholders who demand constant growth.

Lightman points to Apple’s lagging behind in the AI race, the uncertainty around installing a new CEO in John Ternus, and the lack of a hit new product category as putting pressure on the company.

“There’s a lot of things that investors can really beat them up on,” he said, and “if they’re going to be selling the stock and promoting the stock to large institutional investors … in terms of being one of the most valuable companies, then they have to tell a really good story.” And that story is one of huge margins and profits even in the face of rising costs and AI-driven supply constraints.

The AI boom is touching almost every facet of our lives, but this week, it came particularly hard for our wallets with the announcement of another round of price hikes for the Xbox, and even the Arduino got caught up in the memory crunch. I spent hours talking to marketing and business experts, exchanging emails and phone calls, and no one could give me a satisfying answer to why the price of popping up more data centers should be consumers’ costs to bear.

Background: The global memory shortage

The current RAM shortage is not an isolated event. The memory industry has historically been cyclical, with periods of oversupply followed by shortages. However, the AI boom has introduced a structural shift. High-bandwidth memory (HBM), which is used in AI accelerators, requires different manufacturing processes than standard DDR5. Memory makers like Samsung, SK Hynix, and Micron have pivoted production lines to HBM, reducing the supply of consumer RAM. This has led to price hikes across the board, affecting everything from laptops to gaming consoles to smart home devices.

According to industry analysts, the demand for HBM is expected to grow by 50% annually through 2028, driven by the expansion of large language models and data centers. This means the shortage of consumer RAM is likely to persist for several more years. While companies like Apple could theoretically absorb the costs, they are choosing to pass them on to consumers to maintain their profit margins and satisfy investors.

Apple's financial position

Apple is one of the most profitable companies in the world. In its most recent fiscal year, it reported net income of over $100 billion. Its gross margin on hardware products hovers around 40%, far above the industry average. Even with the rising cost of RAM, Apple could have raised prices only modestly without impacting its bottom line significantly. However, the company has chosen to increase prices by a wide margin, suggesting that the price hikes are not purely about covering costs.

Some analysts argue that Apple is using the RAM shortage as an excuse to boost its average selling price. The company has a history of using supply chain constraints to justify price increases, even when costs are not the primary driver. For example, during the chip shortage of 2020-2023, Apple raised prices on several products, only to keep them elevated when supply normalized. This pattern raises questions about the true motivation behind the current price hikes.

The role of shareholder pressure

Apple's stock price has faced headwinds in recent months, as investors worry about the company's growth prospects. With the iPhone market maturing and no revolutionary new product on the horizon, Apple is under pressure to deliver consistent earnings growth. Raising prices is one of the easiest ways to boost revenue without increasing sales. By blaming the AI industry, Apple can deflect criticism while still achieving its financial goals.

Professor Lightman notes that Apple is also dealing with a succession challenge. Tim Cook is expected to step down within the next few years, and his successor, John Ternus, faces the task of maintaining Apple's premium brand image. Raising prices now sets a new baseline that will make future financial results look more impressive, helping the new CEO win over Wall Street.

Consumer impact and alternatives

For consumers, the price hikes mean that buying a new MacBook or iPad is now significantly more expensive. Some may choose to delay their purchases or buy refurbished models. However, Apple's ecosystem lock-in makes switching difficult. The company's services revenue, which includes iCloud, Apple Music, and the App Store, continues to grow, and many users are willing to pay a premium for the integration.

There are some alternatives gaining traction, such as Windows laptops with comparable performance at lower prices, but they also suffer from RAM price increases. The entire industry is feeling the pinch. The only way for consumers to avoid paying more is to buy devices with less RAM, but that often means compromised performance. For those who need high-performance machines for creative work or AI-related tasks, the price hikes are particularly painful.

Broader implications

The current situation highlights a fundamental tension in the tech industry. Companies are racing to build AI infrastructure, but the costs are being passed on to ordinary consumers who may not even use AI services. This dynamic has led to calls for regulation or for companies to share the burden more equitably. However, in an unregulated market, companies will continue to prioritize profitable data center sales over consumer products.

The RAM shortage also underscores the need for more resilient supply chains. Governments in the US, Europe, and Asia are investing in domestic chip manufacturing, but these efforts will take years to bear fruit. In the meantime, consumers will have to pay more for devices that have become essential for work, education, and entertainment.

Experts like Professor Jagabathula suggest that the shortage is not temporary and might extend into the next few years. Because the increase is lasting rather than temporary, simply absorbing the cost is not a sustainable strategy for most companies. However, Apple, with its enormous cash reserves, could have chosen a different path. Its decision to raise prices instead of absorbing costs reveals its priorities: shareholders first, customers second.

Source: The Verge News