AI infrastructure surge begins squeezing Apple’s component costs — company considering supplier other than TSMC for lower-end chips, report claims

Apple is beginning to feel the downstream effects of the AI infrastructure boom, with surging demand for data center hardware pushing up component costs and weakening the leverage it has long exercised over its suppliers. Meanwhile, foundry capacity and packaging are increasingly being pulled toward AI accelerators instead of consumer products. Now, WSJ reports is facing a big squeeze, and is even considering suppliers other than TSMC for its lower-end processors.

During the company’s most recent earnings call on January 29, CEO Tim Cook acknowledged that the company was seeing constraints in its chip supplies and that memory costs were rising significantly. Over the past few months, we’ve seen an unusually aggressive upswing in DRAM and NAND pricing, with new estimates from TrendForce suggesting that contract prices for standard DRAM will climb by more than 90% quarter-over-quarter in the January to March period of 2026, up from an earlier estimate of 55-60%. NAND itself is up by more than 30%, driven by suppliers prioritizing high-margin server parts and long-term commitments tied to AI infrastructure.

“Persistent AI and data center demands in 1Q26 are further worsening the global memory supply and demand imbalance, thereby increasing suppliers’ pricing power,” TrendForce said in a statement.

This will be a major sticking point for Apple because memory is one of the few major BOM components where volatile pricing can quickly move margins at scale. Analysts cited by the Wall Street Journal estimate that combined DRAM and NAND costs for the upcoming iPhone 18 could be almost $60 higher compared to the base model iPhone 17. WSJ reports that suppliers are "gaining the leverage to demand that the iPhone maker pay more," and notes that the aforementioned increases in DRAM and NAD costs for iPhone could be a big hit to the iPhone's bottom line. WSJ claims Apple is likely the single biggest buyer of NAND globally, spending billions of dollars a year on it.

Historically, Apple has been able to absorb or deflect these kinds of price pressures through aggressive supplier negotiations and frequent contract renegotiations due to its status as one of the world’s largest buyers of NAND. But the dynamics have changed very quickly as memory makers and upstream suppliers redirect capacity toward AI infrastructure customers that are willing to sign multi-year commitments and pay upfront premiums, as well as tolerate less flexible pricing.

Apple simply cannot sustain its traditional insistence on short contracts and price concessions when competing with those customers, as an analyst speaking to the WSJ put it, “the companies now pushing the boundaries of human‑scale engineering are the ones like Nvidia.”

Apple’s margins are challenged further by the fact that its cost structure depends on long-term predictability. While the company has pricing power at the higher end of the market, sudden swings in core components like memory are difficult to offset across product lines that ship hundreds of millions of units each year.

The WSJ notes that Apple has historically defended its margins not by raising prices but by reshaping configurations and product mix, with storage tiers and upselling having enabled the company to both absorb higher component costs and maintain familiar pricing. With suppliers increasingly prioritizing long-term, high-margin AI infrastructure contracts, Apple’s traditional advantages in scale and purchasing volume are no longer enough to guarantee flexible pricing or preferential access to capacity.

Follow Tom's Hardware on Google News, or add us as a preferred source, to get our latest news, analysis, & reviews in your feeds.