The AI Boom Is Coming for Apple’s Profit Margins
Parts for iPhones to cost more owing to surging demand from AI companies.
4 min
Apple has dominated the electronics supply chain for years. No more.
Artificial-intelligence companies are writing huge checks for chips, memory, specialised glass fibre and more, and they have begun to out-duel Apple in the race to secure components.
Suppliers accustomed to catering to Apple’s every whim are gaining the leverage to demand that the iPhone maker pay more.
Apple’s normally generous profit margins will face pressure this year, analysts say, and consumers could eventually feel the hit.
Chief Executive Tim Cook mentioned the problem in a Thursday earnings call, saying Apple was seeing constraints in its chip supplies and that memory prices were increasing significantly.
Those comments appeared to weigh on Apple shares, which traded flat despite blowout iPhone sales and record company profit.
“Apple is getting squeezed for sure,” said Sravan Kundojjala, who analyses the industry for research firm SemiAnalysis.
AI chip leader Nvidia recently became the largest customer of Taiwan Semiconductor Manufacturing , or TSMC, Nvidia Chief Executive Jensen Huang said on a podcast.
Apple had been TSMC’s biggest customer by a wide margin for years. TSMC is the world’s leading manufacturer of advanced chips for AI servers, smartphones and other computing devices.
Spokesmen for Apple and TSMC declined to comment.
The big computers that handle AI tasks don’t look like the smartphones consumers own, but many companies supply components for both. In particular, memory chips are in short supply as companies such as OpenAI, Alphabet’s Google, Meta , Microsoft and others collectively spend hundreds of billions of dollars to build AI computing capacity.
“The rate of increase in the price of memory is unprecedented,” said Mike Howard , an analyst for research firm TechInsights.
That applies both to the flash memory chips that store photos and videos, called NAND, as well as the memory used to run apps quickly, called DRAM.
By the end of this year, the price of DRAM will quadruple from 2023 levels, and NAND will more than triple, estimates TechInsights.
Howard estimates that Apple could pay $57 more for the two types of memory that go into the base-model iPhone 18 due this fall compared with the base model iPhone 17 currently on sale. For a device that retails for $799, that would be a big hit to profit margins.
Apple’s purchasing power and expertise in designing advanced electronics long made it an unrivaled Goliath among the Asian companies that make most of the iPhone’s parts and assemble the device.
Apple spends billions of dollars a year on NAND, for instance, according to people familiar with the figures, likely making it the single biggest buyer globally. Suppliers flocked to win Apple’s business, hoping to leverage its know-how and prestige to attract other customers.
These days, however, “the companies now pushing the boundaries of human‑scale engineering are the ones like Nvidia,” said Ming-chi Kuo, an analyst with TF International Securities.
Demand for AI hardware is poised to keep growing rapidly. Apple’s spending growth is modest in comparison with what is being spent to fill up AI data centers, even though it is breaking records with huge sales of the iPhone 17.
Samsung Electronics and SK Hynix are raising the price of a type of DRAM chip for Apple, according to people familiar with Apple’s supply chain.
Big AI companies pay generously and are willing to lock in supply and make upfront payments, giving the South Korean chip makers leverage against the iPhone maker.
Apple signs long-term contracts for memory, but it has used its heft to squeeze suppliers.
Its contracts have empowered it to negotiate prices as often as weekly, and to even refuse to buy any memory from a supplier if Apple didn’t view the price as favorable, according to people familiar with its memory purchases.
To boost leverage with suppliers, Apple even began stocking more inventory of memory. That was atypical for Cook, who normally cuts inventory to the bone to maximize Apple’s cash flow.
Apple is fighting not only for current deliveries but also for the attention of engineers at suppliers.
Glass scientists who worked on developing the smoothest and lightest smartphone displays are now also spending time on specialised glass for packaging advanced AI processing chips, according to industry executives.
Makers of sensors and other gizmos inside the iPhone are winning new business from AI companies such as OpenAI that are developing their own hardware.
Still, suppliers said they were far from giving up on business with Apple. Working with Apple is a form of education, they said, because it remains one of the most demanding and disciplined customers in the industry.
TSMC, the Taiwanese chip manufacturer, has built successive generations of its most advanced chips with Apple as its lead customer, relying on the big predictable demand for iPhones.
Now that TSMC is doing more business with Nvidia and other AI companies, people with knowledge of the chip supply chain said Apple was exploring whether some lower-end processors could be made by someone other than TSMC.
One of Apple’s biggest profit-spinners is selling extra memory for far more than the memory chips cost the company.
Last fall Apple discontinued the iPhone Pro model with 128 gigabytes of storage.
Customers who want that model must now start at 256 gigabytes and pay $100 more—the type of move that could be repeated this year to help Apple offset higher costs, wrote Craig Moffett, an analyst at Moffett Nathanson, in an investor note.
However, Apple isn’t expected to raise the price of its next iPhone models over similarly equipped iPhone 17s, said Kuo, the analyst.
News Corp, owner of The Wall Street Journal, has a commercial agreement to supply news through Apple services.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
As interest rates, inflation and market sentiment fluctuate, investors are being urged to focus on data, not panic.
Sydney Children’s Hospitals Foundation CEO Kristina Keneally says Australia’s culture of large-scale philanthropy is becoming more sophisticated as Gold Dinner raises $75.5 million for children’s health, research and innovation.
From tax residency and superannuation to offshore investments and property, the financial implications of coming home can be more complex than leaving.
3 min
Every year, thousands of Australians make the decision to pack up life overseas and come home.
After years, sometimes decades, building careers, accumulating assets, and growing families in places like Dubai, London, Singapore, or Hong Kong, the pull back is understandable.
What most don’t appreciate until it’s too late is that the return journey is often far more financially complex than the departure.
Leaving Australia is, financially speaking, a relatively clean event.
You depart, you potentially become a non-resident for tax purposes, and a new set of rules applies.
Coming back, however, means reconciling everything you’ve accumulated offshore with an Australian tax system that hasn’t been standing still waiting for you.
The Tax Residency Trap
The first and most costly mistake is misunderstanding when Australian tax residency resumes.
Many returning expats assume residency only kicks in once they’ve formally re-established themselves, signed a lease, updated their address, started a job. The ATO doesn’t see it that way.
Under Australian tax law, residency can recommence the moment you land with the intention of remaining. That means any taxable events, investment income, asset disposals, foreign account distributions that occur after that point are potentially assessable in Australia, even if they’re sitting in offshore accounts you haven’t touched.
Superannuation: The Clock Doesn’t Stop
One of the most underappreciated issues for returning expats is what’s been happening inside their superannuation fund while they’ve been away.
Contributions may have paused, but fees, insurance premiums, and investment volatility haven’t. Some returning clients are genuinely shocked by how much ground their super has lost to fees during periods of lower balances or inappropriate investment settings.
The more strategic issue is what to do on the way back. If you hold foreign pension arrangements, a UK SIPP or QROPS, a 401(k), and international savings schemes, the question of whether and how to repatriate those funds requires careful planning before you return.
Once you’re a tax resident again, distributions from certain foreign structures can be assessable as ordinary income, and the window to manage that exposure closes.
Offshore Investments Don’t Disappear
Returning to Australia doesn’t sever your obligations in the countries where you’ve been living.
Foreign-held shares, managed funds, or investment accounts will be picked up by Australian tax reporting requirements from the moment residency resumes.
The Foreign Investment Fund rules, transferor trust provisions, and the reporting obligations under Australia’s tax information exchange agreements mean these holdings need to be declared and, in some cases, restructured.
Leaving investments sitting offshore in structures that made sense as a non-resident but create compliance headaches as a resident is one of the most common and expensive mistakes we see.
The restructuring cost, if it’s even possible post-return, typically dwarfs what it would have cost to plan properly in advance.
Property: Both Sides of the Balance Sheet
There are two distinct property problems for returning expats.
The first is what they’ve held while away, an Australian property rented out during the absence.
Depending on how long the property was the main residence and how it was treated during the rental period, the CGT calculation on eventual sale can be complex.
The six-year absence rule provides some relief, but it’s not automatic and has conditions that are frequently misunderstood.
The second is re-entry into the Australian property market.
After years of asset accumulation offshore, many returnees assume they’re well-positioned to buy.
The challenge is that their financial picture, including foreign income history, offshore assets and currency, doesn’t translate neatly into Australian mortgage serviceability.
Lenders read foreign income conservatively, and what looks like a strong balance sheet can create unexpected borrowing capacity issues.
The Fix: Plan Before You Land
The single most effective thing an expat can do is start planning the return 12 to 18 months before departure.
That timeline allows for managed asset disposals under non-resident rules where advantageous, superannuation catch-up strategies, foreign structure rationalisation, and property decisions that aren’t being made under time pressure.
The irony is that most Australians sought financial advice before they left on how to exit cleanly.
Far fewer seek the same rigour on the way back in. Given the complexity involved, that’s an expensive oversight.
Coming home should be a financial clean slate. With the right planning, it can be. Without it, you’ll spend the first few years back unwinding decisions that didn’t have to be problems at all.
Brett Evans is the founder of Atlas Wealth and the author of The Expat’s Handbook.
From elevated skincare to handcrafted home pieces, this year’s most thoughtful gifts go beyond the expected.
Automobili Lamborghini and Babolat have expanded their collaboration with five new colourways for the ultra-exclusive BL.001 racket, limited to just 50 pieces worldwide.
