John Ternus is taking over Apple at a difficult time for the company. Ternus has just replaced Tim Cook as Apple CEO, but he is starting his tenure with a major cost problem: memory chips are becoming more expensive and harder to secure.
Tim Cook gave a clear warning about rising memory costs during his final earnings call as Apple CEO. Cook said Apple is facing a “unique” challenge because data centers are using up a large amount of the available memory supply. This is pushing up prices for Apple and other device makers, according to The Motley Fool.
AI demand is pushing up memory costs
The memory crunch is largely being driven by the huge demand from data centers. The rapid growth of artificial intelligence has increased demand for memory used in data centers. As these companies buy more memory, less supply is available for consumer electronics companies such as Apple.
Apple expects to pay more for memory in every coming quarter. Cook said Apple had already expected memory costs to rise in the June quarter compared with March, and that is what happened. He also warned that Apple expects to pay even higher memory costs in the September quarter, according to remarks cited by The Motley Fool.
Apple’s memory costs are rising
Apple has some protection because it buys memory in advance, but that advantage is shrinking. Cook said Apple benefits from purchasing some memory at lower prices ahead of time. However, as memory prices continue to rise, that benefit is becoming smaller and is expected to keep declining even after the September quarter.
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This matters because memory is a direct cost for Apple’s devices. When Apple has to spend more to buy memory chips for iPhones, Macs and other products, it can reduce the amount of money the company makes from each device unless Apple raises prices or finds other ways to cut costs.
Apple has already started raising prices on some products. Apple increased prices on some Macs in June, according to The Motley Fool. The company is also widely expected to raise prices on some of its new iPhones when they launch on September 9.
Higher iPhone prices could help Apple recover part of the extra memory cost, but they may not completely solve the problem. Price increases can protect Apple’s profit margins by making customers pay more for devices. However, according to The Motley Fool, the increases are unlikely to fully offset the financial impact of higher memory costs.
Apple margins are expected to fall
Apple has already warned investors that its margins will fall. Apple CFO Kevan Parekh said the company’s gross margin is expected to be 46.5% for the September quarter, compared with 48.1% in the June quarter, excluding tariff benefits. Parekh specifically pointed to higher memory costs as the reason for the decline.
Parekh directly linked the expected margin decline to memory costs. On the earnings call, Parekh said the decrease in margins was “really driven by memory,” according to The Motley Fool. This makes the memory shortage one of the first major financial challenges Ternus faces as CEO.
The problem is bigger than just one quarter. Cook’s warning suggests Apple could continue facing higher memory prices beyond September. That means Ternus may have to deal with pressure on Apple’s margins for much of the early part of his tenure.
Apple looks to CXMT for supply
Apple has already explored another possible source of memory chips. Apple has reportedly tested DRAM memory chips made by China’s CXMT, according to The Motley Fool. The company could potentially use memory from CXMT in devices sold in China. Apple is also reportedly trying to expand its use of CXMT memory outside China. The Financial Times reported that Apple has been lobbying the US government to allow it to use CXMT’s memory processors more broadly outside China.
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But CXMT may not have enough supply to become Apple’s quick solution. The Wall Street Journal reported that CXMT has already reached its annual memory production capacity. This means Apple cannot simply switch a large part of its memory supply to CXMT and immediately solve the shortage.
Apple depends on major chip makers
Apple is also dependent on the world’s biggest memory suppliers. Samsung, SK Hynix and Micron Technology are the three biggest memory companies globally and together account for about 94% of the DRAM market, according to The Motley Fool. All three are also Apple suppliers.
The memory shortage could last for years, making the problem harder for Ternus to solve. Executives at SK Hynix and Micron have indicated that the current memory crunch could continue through 2027 or potentially even 2030, according to The Motley Fool.
Higher iPhone prices carry a risk
That long-term supply pressure creates a bigger margin problem for Apple. If memory prices remain high for several years, Apple cannot depend on short-term savings or one-time price increases. It will need to manage its supply contracts, product pricing and costs carefully.
Higher iPhone prices also carry a risk for Apple. If Apple raises prices too much to cover higher memory costs, some customers could delay upgrades or choose cheaper models. That could put pressure on iPhone demand even as Apple tries to protect its margins. This makes the memory problem an important early test for Ternus. Ternus needs to find the right balance between paying more for memory, securing enough supply and keeping Apple products attractive to customers. The decisions he makes could directly affect Apple’s profitability.
For Apple investors, the key question is how quickly Ternus can stabilize margins. Apple is entering his tenure with strong pricing power, a huge customer base and established relationships with major memory suppliers. But the company does not appear to have a permanent solution to the memory shortage yet.
The immediate outlook is therefore difficult for Apple’s profits. Apple has already guided to a lower September-quarter margin, while memory prices are still rising. Ternus will need to manage that pressure while also dealing with the launch of Apple’s next-generation iPhones.
The bigger challenge will be recovering those margins over time. Apple will likely need a combination of price increases, better memory supply and cost management to offset the higher chip costs. Until that balance is found, memory prices could remain a drag on Apple’s profitability during the early part of Ternus’ time as CEO.
