Memory-Driven Price Shock Starts as Apple Raises Prices by as Much as 29% After Samsung

Apple’s Surprise Price Increase Fuels Fears of a Third Inflation Wave

‘Chipflation’ Becomes Reality

Rising semiconductor prices are beginning to push up a broad range of consumer goods, especially electronics, turning “chipflation” — inflation driven by chip costs — into reality. Apple’s decision to raise prices on its latest devices comes as electricity and labor costs are also climbing.

On June 25, Apple announced price increases for major products. The MacBook Pro will sell for $1,999, up 17.7%, while the MacBook Air will be priced at $1,299, an 18.2% increase. The increases were even steeper for lower-priced iPads: the iPad Air will rise 25.0%, the iPad Pro 20.0%, and the entry-level iPad 28.7%.

Apple attributed the increases to a sharp jump in component costs. The company said the rapid expansion of artificial intelligence data centers had caused an abnormal surge in demand for memory chips and storage devices, sending parts prices sharply higher. It added that component prices had never risen so quickly or by so much.

Demand for semiconductors from AI data centers is surging. FactSet said capital spending this year by five hyperscalers — Alphabet, Amazon, Meta, Microsoft and Oracle — is projected to reach $741 billion. Most of that money is set to go into AI infrastructure such as data centers, a 75% increase from a year earlier.

That is pushing up prices for memory chips, cables and cooling equipment, along with related labor costs. TrendForce said DRAM prices rose 172% last year and then jumped more than 90% again in the first quarter alone.

The Wall Street Journal said a semiconductor-driven “third wave of inflation” may be approaching, following the supply-chain shock triggered by the pandemic and the energy spike caused by the Russia-Ukraine war. In Asian trading on June 26, shares of memory-chip makers including Samsung Electronics, SK Hynix and Japan’s Kioxia tumbled on concern that higher product prices could weaken demand.

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Apple’s pricing is widely viewed as a key barometer of global inflation trends because the company is among the best at absorbing cost shocks through long-term supply contracts, large pre-orders and design optimization. That is why Apple price increases are taken as a sign that inflationary pressure is broadening. Apple Chief Executive Officer Tim Cook recently said he had never experienced this kind of “chipflation” in more than 40 years in the electronics industry, calling it a once-in-a-century flood.

AI-Driven Inflation

Apple held out longer than many rivals. Samsung Electronics raised smartphone prices by as much as 20% early this year after keeping them unchanged through last year. Nintendo, Sony and Microsoft have increased game-console prices, while PC makers including Dell, HP and Lenovo have announced price increases of 15% to 20% since last year.

This inflation cycle is unusual because it began with investment rather than consumption. It stems from a capital-spending race among big tech companies trying to build AI infrastructure ahead of rivals. Stijn Van Nieuwerburgh, a professor at Columbia Business School, said AI data centers require sophisticated computing equipment, cooling systems, electrical and fiber-optic cables, and backup generators to prevent power outages. Spending on AI infrastructure could reach $8 trillion by 2032, he said.

That sets this episode apart from the inflation that followed the Covid outbreak, which began with supply-chain paralysis caused by port closures, logistics bottlenecks and factory shutdowns. The price shock after the Russia-Ukraine war came from surging energy and raw-material costs, including crude oil, natural gas, grain and fertilizer.

Impact Reaches Consumer Prices

The shock from rising memory prices is now spreading to finished consumer goods. High-bandwidth memory, or HBM, is essential for AI accelerators. When memory makers prioritize output for HBM and other high-value products used in data centers, supplies of commodity DRAM and NAND flash for smartphones, cars and home appliances become relatively tighter.

Chip prices have soared. TrendForce estimates DRAM prices rose by as much as 98% in the first quarter and will climb another 58% to 63% in the second quarter. Prices for smartphone DRAM and NAND flash have also jumped more than 80% in the past three months. Sigmaintell estimated the price of LPDDR5X 12GB for smartphones rose to $145.9 in the second quarter from $77.1 in the first quarter. Over the same period, the price of smartphone storage modules, or UFS 256GB, climbed to $62.7 from $31, more than doubling.

The impact is beginning to show in US consumer prices. Consumer prices for computer software and peripheral equipment in May rose 14.5% from a year earlier, according to US Department of Labor data. On a wholesale basis, electronic-component prices climbed 27% over the same period.

Labor costs are also rising. Average hourly pay for electricians and wiring-installation technicians in the US increased 6.5% in April from a year earlier as demand for data-center construction climbed. That was nearly double the overall private-sector wage growth rate of 3.6%. Residential electricity bills rose 5.9% as data-center demand pushed up power costs.

‘Chipflation’ Is Only Beginning

In a survey by the National Association for Business Economics, 81% of respondents said AI infrastructure build-outs would push prices higher over the next two years. Goldman Sachs projected consumer electricity bills would rise about 6% this year and next as more data centers come online.

Some analysts say chipflation is only beginning. Federal Reserve Governor Lisa Cook said in a speech at Stanford University last month that the AI investment boom is creating fresh price pressure. Announced data-center plans already exceed $1.5 trillion, but only part of that pipeline has materialized so far, she said. If investment totaling as much as $8 trillion is rolled out over the coming years, demand for resources and price pressure will intensify further.

Kim Ju-wan, Kim Chae-yeon and Lee Hye-in, Korea Economic Daily reporters kjwan@hankyung.com