Why AI Chip Demand May Push iPhone Prices Above $1,299

Apple's iPhone and other mobile manufacturers are about to raise their prices on the newest models as increasing demand versus limited supplies for DRAM memory chips from AI manufacturers drive up costs. 

This is another example in a growing list of reasons why AI is likely to be inflationary. In this case, chip makers garner greater profit margins from enterprise chips relative to those made for consumer products. The interesting question is to what degree this may depress demand for mobile devices, which is already sparking a search for new sources, such as those in China. JL

Nicole Nguyen and Rolf Winkler report in the Wall Street Journal:

The global memory chip shortage is coming for the iPhone. Based on the current markup of memory and storage chips, projections show the price of the base model could rise by $200 or more. AI demand has created an unprecedented run on two types of memory chips, DRAM and NAND flash storage. Only a few companies, including Samsung and Micron, supply the market. Data centers training and running large language models are willing to pay a premium for these chips, so manufacturers are shifting production toward enterprise-scale components and away from the consumer business. The iPhone 17 Pro contains 12 gigabytes of DRAM and flash storage starting at 256 gigabytes. Prices for these components are projected to quadruple. The gross profit margin on the $1,099 iPhone 17 Pro was 47%. To maintain that margin for the iPhone 18 Pro, Apple would have to charge $1,371. The starting price tag would more likely be $1,299, yielding a 44% gross profit.

The global memory-chip shortage is coming for the iPhone.

Apple AAPL 0.70%increase; up pointing triangle isn’t immune to soaring chip prices, Chief Executive Tim Cook told The Wall Street Journal. When asked which devices would be getting price increases and when, Cook responded, “We’re still working through that.”

We’re likely to find out more this September, when the next iPhone and other devices are expected to arrive. 

So for now, we decided to make an educated guess at how much more Apple hardware will cost, using the anticipated but as yet unannounced iPhone 18 Pro. Our analysis—based on the current markup of memory and storage chips and projections from research firm TechInsights—shows why the price of the base model could rise by $200 or more.

Sticker Shock

Apple must pay more for two memory-chip components, so the price it charges iPhone buyers also goes up

Bill of materials for iPhone 17 Pro

iPhone 17 Pro

base model cost

Estimated cost of

iPhone 18 Pro

Display

Main enclosure

Rear cameras

Rear camera

array

$125

$93

Processor

Processor

A19 Pro

$42

Display

Main enclosure

Memory

12 GB

DRAM

5G cellular

modem

Battery

$229

Storage

256 GB

Other

components*

5G cellular

modem

Memory

$39

Storage

$13

$145

Battery

$51

$582

$726

Apple’s cost

$1,299

$1,099

Retail price

(estimated)

*Includes conversion cost
Note: Processor and memory are stacked on same chip.

Source: TechInsights (component cost estimates); iFixit (hardware teardown)

Andrew Mollica/WSJ

Chip math

AI demand has created an unprecedented run on two types of memory chips, DRAM (aka dynamic random access memory) and NAND flash storage. Only a few companies, including Samsung Electronics and Micron Technology, supply the market.

Data centers used to train and run large language models are willing to pay a premium for these chips, so manufacturers are shifting production toward enterprise-scale components and away from the consumer business. That’s a problem for lots of electronics we might be shopping for, including new iPhones.

The iPhone 17 Pro contains 12 gigabytes of DRAM and flash storage starting at 256 gigabytes. Prices for these components are projected to quadruple by this fall, compared with last year, according to Mike Howard, director of memory markets at TechInsights.

He estimates that Apple paid about $39 for the 12GB of DRAM in the 17 Pro, but in the 18 Pro, the cost could reach $145. For the much cheaper flash storage, Howard says Apple paid around $13 for 256GB, and that price could rise to $51.

Wayne Lam, service director of wireless components at TechInsights, estimates that, besides DRAM and flash storage, Apple’s cost for iPhone 17 Pro parts and manufacturing is roughly $530. So when you add in the DRAM and flash storage, a base iPhone 17 Pro costs the company about $582, while its estimated cost for a starting iPhone 18 Pro will jump 25% to $726. 

While Apple doesn’t report the gross profit margins on individual products, the TechInsights research suggests the margin on the $1,099 iPhone 17 Pro was a tidy 47%. To maintain that profit margin for the iPhone 18 Pro, based on estimated costs, the company would have to charge $1,371. Because the company likes standardized pricing, the starting price tag would more likely be $1,299, yielding a 44% gross profit.

And this calculation doesn’t account for a potential new camera system that will also cost Apple about 50% more than previous models, according to supply chain analyst Ming-Chi Kuo.

In that case, following the same math, Apple could set the starting price of the iPhone 18 Pro at $1,399—or higher.