Apple warns of worsening memory crunch, eyes Chinese chipmakers as supply squeeze deepens

Apple CEO Tim Cook delivers a keynote address at Apple's WWDC at Apple Park in Cupertino, California, on July 8. [Getty Images/AFP]

Soaring semiconductor prices have caught up with Apple, which warned that rising memory costs could increasingly weigh on its profitability.

The concern showed up in Apple's share price. Despite posting earnings that beat market expectations, the stock fell on mounting fears that memory supply will grow tighter.

Apple reported sales of $109.42 billion and earnings per share of $2.02 for the third quarter of fiscal year 2026 (April–June), announced June 30. Both figures topped the market consensus of $108.65 billion in sales and $1.89 EPS, yet the share price fell 3 percent.

The earnings call was Cook's last as CEO, but the outlook he offered was far from bright. Cook said Apple expects fourth-quarter fiscal 2026 revenue to grow 9 to 11 percent year-on-year — below the consensus estimate of 12.1 percent. Supply chain uncertainty was cited as the key reason Apple set a lower bar.

Apple recently raised prices on major products including the iPad and MacBook by 15 to 20 percent. Cook said the surge in memory prices was the direct cause of those increases.

"We raised prices reluctantly," Cook said on the earnings call, describing the situation as "a once-in-a-century flood" of exponentially rising memory costs.

Even with the price hikes, Apple's gross margin has consistently declined since March. The company pointed to rising memory prices as the primary driver of that deterioration.

"As I said at the last earnings call, we paid more for memory in the March quarter than in the December quarter," Cook said. "We expected memory procurement costs to rise significantly in the June quarter compared to the March quarter, and that is exactly what happened."

He added that while previously carried-over inventory had partially offset the impact in the June quarter, that buffer would diminish over time after the September quarter. "We expect memory market prices to continue rising after the September quarter," he said. "That means the impact on our business could expand further."

With memory prices squeezing margins, Apple has stepped up efforts to bring Chinese memory makers into its supply chain.

According to the Wall Street Journal, Apple executives including Cook recently met directly with President Donald Trump, Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent to make the case for sourcing Chinese memory chips.

Apple is pushing to use memory from China's CXMT and Yangtze Memory Technologies Corp. (YMTC) in products sold outside the United States.

The argument is that broadening its memory procurement beyond Samsung Electronics, SK Hynix and Micron to include Chinese suppliers would ease the supply shortage while also helping to hold down consumer electronics prices.

US lawmakers, however, have pushed back hard, warning that Apple's adoption of Chinese memory could accelerate the spread of Chinese semiconductors in global markets.

In July, Rep. John Moolenaar, the Republican chair of the House Select Committee on China, and Rep. George Whitesides, a Democratic lawmaker, sent a letter to Secretary Lutnick urging him to ban US companies from purchasing products from CXMT and YMTC.

The Senate joined in on Wednesday. Sen. Jim Banks, a Republican, and Senate Minority Leader Chuck Schumer, a Democrat, were among senators who sent Cook a letter demanding he "commit by Aug. 21 not to use memory from CXMT or YMTC in Apple products." The bipartisan opposition to Apple's push for Chinese memory shows no sign of abating.

Micron, the US memory chipmaker, has also pushed back forcefully.

Micron CEO Sanjay Mehrotra said in June that memory companies alone should not bear the blame for the price surge. "During the memory downturn in 2023, customers pushed prices down to one-third of previous levels," he said. "Companies took losses, and it had a serious impact on the industry's capacity to invest." The remarks were widely seen as a direct shot at Apple.

Micron has also been lobbying the Trump administration against the introduction of Chinese memory chips.

Despite the political and industry backlash, Cook reiterated the possibility of expanding Apple's supply chain on Friday.

"There are basically only three suppliers in the DRAM market," he said. "Having more suppliers would obviously be a good thing."

"It's uncertain what effect that would have on pricing, but it could help on the supply side," he added. "We are reviewing all options."

CXMT is reported to have offered Apple higher prices in supply negotiations than Samsung Electronics and SK Hynix, but Apple appears to be prioritizing supply chain diversification over cost — willing to pay a premium to add memory sources and reduce supply chain risk.

Apple identified its foundry supply chain as another major constraint, noting that the application processors it sources from TSMC are currently its "biggest supply bottleneck."

On that front, however, Apple characterized the problem as one of demand forecasting rather than a typical supply issue.

"Supply chain flexibility is lower than usual," Cook said. "We have been pulling orders forward to secure volume, but there is a limit to how far you can do that."

TSMC's most advanced 2-nanometer process is reported to be fully booked through 2028 as demand has surged. Although TSMC is expanding production lines worldwide, supply remains far short of demand.

Asked whether Apple might use Intel as an additional foundry supplier alongside TSMC, Cook sidestepped the question. "It's not a matter of partners or suppliers," he said, adding that the real issue was that strong iPhone and Mac upgrade demand had pushed actual orders well beyond initial forecasts.

go@heraldcorp.com