We All Must Shoulder the Cost of AI.

Author: He Jian

Editor: Jiang Jiao

Cover Story: The Big Short

After months of warnings about memory price pressures and the looming threat of price hikes, Apple finally bit the bullet and announced price increases yesterday, affecting numerous product lines, including Macs and iPads. Some products have seen price jumps of up to 3,000 yuan, marking Apple's most significant price hike to date.

Notably, the flagship iPhone was spared from this round of price increases. The starting price of the iPhone 17 Pro series, released last year, had already been raised by 1,000 yuan compared to its predecessor. Industry outsiders predict that the new iPhone models slated for release this fall will see substantial price hikes, with the foldable iPhone potentially starting at over $2,000.

Apple recently reported its fastest quarterly growth in three years. In the first quarter of this year, revenue surged by 17% year-on-year to $111.2 billion, and profit soared by 19% to $29.6 billion, both significantly surpassing Wall Street expectations. Growth in the Chinese market was even more impressive, with sales jumping by 28% year-on-year.

However, all that is now in the rearview mirror. With global memory prices skyrocketing, even a behemoth like Apple cannot absorb the pressure indefinitely. Not long ago, CEO Tim Cook remarked in an interview with The Wall Street Journal that he had never witnessed such significant price fluctuations in his four-decade career, likening it to a "flood of the century."

During the previous earnings call, Apple mentioned that its existing inventory had helped maintain gross profit margins, but memory pressure would soon become apparent, and profitability was expected to dip slightly. IDC forecasts that global smartphone shipments will plummet by 13% this year, the largest decline on record, while the PC market will shrink by 11.3%.

This morning, Apple's stock price plummeted by 6.1% at the close of U.S. trading, marking its largest single-day decline in the past year.

No One in the Consumer Electronics Industry Is Immune

Apple's unprecedented price hike signals the collapse of the consumer electronics industry's last stronghold. With global memory prices soaring and AI investments continuing to expand, the consumer electronics sector has become the first casualty.

Prior to this, Android smartphone manufacturers had already taken the lead in raising prices. Multiple brands in the Chinese market, including OPPO, Vivo, Xiaomi, and Honor, have successively increased prices for their mid-range and low-end models—due to thinner profit margins and a larger proportion of chip costs in these segments.

Huawei's Yu Chengdong stated at a press conference in April this year that rising costs were exerting significant pressure on pricing new models, and Huawei would have to raise prices if it couldn't hold out. Sure enough, Huawei's newly released Nova series models in June also saw price increases.

The PC market has witnessed even more dramatic price hikes, with Lenovo, Asus, HP, Dell, and others raising prices multiple times, with some products seeing increases of up to 30%. However, PC manufacturers often have a vast B2B market to fall back on, as well as the AI PC trend, which has led to soaring performance and revaluation for some brands like Lenovo.

Game console manufacturers such as Microsoft, Sony, and even Nintendo have also raised prices multiple times. In March this year, Sony's PS5 series saw a comprehensive price increase in China, with the highest increase reaching 700 yuan. In May, Nintendo announced that the global price of the Switch 2 would increase by $50. After experiencing two price hikes, Microsoft's Xbox announced another price increase of $100-150 yesterday, following Apple's lead, and discontinued the 2T version with larger storage.

Over the past decade or so, the main trend in the consumer electronics industry has been price reductions. The maturity of production processes and supply chains has continuously reduced manufacturing costs, while the expanding market has accelerated competition and price wars.

When the first-generation Xiaomi phone was released at 1,999 yuan, mainstream flagship models on the market were priced at over 5,000 yuan. Ten years ago, a 55-inch 4K TV cost as much as 10,000 yuan, but now it has almost been phased out of the market. If we take the digitally modeled iPhone as a benchmark, Apple's pricing has remained relatively stable over the past decade.

Even before this memory-price-driven price hike trend, Apple was starting to be seen by consumers as offering good value for money—a notion that would have likely made Steve Jobs chuckle. The MacBook Neo, released early this year, is Apple's cheapest Mac model ever, and it once sold out. During the early craze for raising lobsters at home, the Mac Mini was one of the most cost-effective solutions.

However, after this price hike trend, these value-for-money advantages have vanished. The starting price of the MacBook Neo has risen to 5,499 yuan, up 19.5% from the previous retail price of 4,599 yuan, while the starting price of the Mac Mini has increased from 4,499 yuan to 5,999 yuan, a staggering 33% jump.

MacBook Neo

Apple has stated publicly that the consumer electronics industry is facing unprecedented challenges, with the rapid expansion of AI data centers leading to a surge in demand for memory and storage. They have never seen such a significant and rapid increase in component prices. Apple mentioned that it had been absorbing the pressure of rising component costs internally but now had to start raising prices for some products.

For those planning to buy Apple or Microsoft products, this price hike may dampen their purchasing enthusiasm somewhat. But more pessimistically, this is far from the end of the price hike trend in the consumer electronics industry; it is only the beginning.

While announcing the Xbox price hike, Microsoft stated publicly that the prices of storage and memory for game consoles have increased by more than 2.5 times and are expected to double again by next fall. In other words, the Xbox price hike is not over yet.

Considering that Apple has started to integrate AI into all its products, and the newly upgraded Siri has officially made its debut, Apple products will require larger memory and storage to support their AI capabilities. These costs will drive further price increases for Apple products.

AI Investments Begin to Impact Ordinary Consumers

The direct cause of the widespread price increases in the consumer electronics industry is the chip shortage, as more production capacity is being allocated to AI.

Bloomberg reported that over the past year, the prices of DRAM chips used in data centers, personal computers, smartphones, and even automobiles have increased by nearly 700%. According to TrendForce data, DRAM chip prices alone surged by 98% in the first quarter of this year and are expected to rise by another 58%-63% this quarter. The industry expects the chip price hike trend to continue until 2027.

The memory market is highly oligopolistic, dominated by only three companies globally: South Korea's Samsung and SK Hynix, and the United States' Micron Technology. Over the past decades, the memory market has been subject to market fluctuations similar to the pig cycle, with unstable production capacity and profits.

However, with the advent of the AI era, global tech companies have begun unprecedented capital expenditures, pouring trillions of dollars into computing infrastructure. AI computing has led to a surge in demand for memory. The original production capacity of the memory industry is far from sufficient to support this demand. To maximize profits, chip manufacturers can only continuously reduce production capacity for the consumer electronics industry and allocate more production lines to AI chips.

Bloomberg compiled data on the top ten clients of SK Hynix and Micron over the past few years. In 2022, the largest revenue sources for both companies were still consumer electronics manufacturers such as Apple, Dell, Lenovo, and HP. However, by 2026, the largest client groups had become AI industry giants such as Nvidia, Microsoft, Google, Amazon, and Meta.

Over the past year, memory manufacturers have seen their profits and stock prices rise together, creating a prosperous scene. Samsung's stock price has increased by over 458% in a year, while SK Hynix and Micron's stock prices have both risen by over 800%. Micron Technology's gross profit margin reached 84.9% in the last fiscal quarter, more than doubling from a year ago and hitting a record high, surpassing the 'Magnificent Seven' stocks, including Nvidia, Microsoft, Meta, and Google.

Micron's Stock Price Increase Over the Past Year

This week, South Korean media reported that Samsung plans to invest 1,000 trillion won (approximately $64.6 billion) over the next decade to build AI data centers, battery, and display industries. This is the largest investment plan in South Korean history. SK Hynix is also reportedly set to increase production capacity, planning to double it within the next five years.

However, these investment plans will not alleviate the chip shortage in the short term, let alone the increasing demand for computing power. Bloomberg statistics show that by 2025, AI data centers' demand for DRAM chips will surge to about 50% of global total consumption, compared to just 25% five years ago. Bloomberg expects this proportion to exceed 60% by 2030.

Morgan Stanley predicts that by 2027, DRAM chip production capacity will increase by 30%. However, due to suppliers prioritizing the production of dedicated AI memory, Morgan Stanley predicts that chips for consumer technology will face a demand gap of up to 15%.

Apple's price hike is just the beginning. For ordinary people outside the AI industry, we may not have yet enjoyed the productivity improvements brought by AI, but we are already having to endure the price increases it brings in advance.

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