Apple warns memory prices are unprecedented as smugglers feed China's AI chip demand

Apple says memory costs are unprecedented

John Ternus, Apple's new chief executive, told a conference call on Monday that memory pricing was "unprecedented". He said memory costs in the fourth quarter would be higher again than in the previous three months. The company also told investors the increase will eat into its profit margins. Apple had already raised iPad and MacBook prices in June, then iPhone prices in September, which Ternus said had "provided some offset". Ternus took over in September.

The results themselves beat expectations. Revenue rose 12% to $114.5bn from $102.5bn a year earlier. Earnings rose 12% to $30.71bn, or $2.10 a share, from $27.47bn, or $1.85 a share. Analysts polled by FactSet had expected $1.99 a share on revenue of $113.4bn.

Apple shares fell 2.75% in after-hours trading on Wall Street.

Apple's results bucked a downward trend for tech companies this quarter. Alphabet, Amazon and Intel all reported disappointing quarterly figures.

Jacob Bourne of Emarketer pointed to record iPhone revenue and strong growth in China. He said both showed the resilience of Apple's business. Bourne argued that Apple's "tepid approach" to AI infrastructure spending had helped preserve its cashflow, while rivals face investor doubts over their own AI budgets.

Ben Barringer, head of technology research at Quilter Cheviot, called the quarter "OK, if on the disappointing side". He noted that iPad and wearables disappointed, while services grew 10%, below the group average. Barringer also said there was "a lot of interest" in the iPhone Duo, though the product is not yet on full release.

Why memory is the bottleneck

Memory is the tightest part of the AI supply chain. Samsung and SK hynix together control more than 80% of the global HBM market. Each AI chip needs six to eight HBM units, so the memory alone can cost up to $32,000. Prices on the grey market show the squeeze. Smuggled HBM3E has jumped from a few hundred dollars to around $4,000 per unit in a year, according to a broker in Shenzhen cited by The Decoder.

The black market does not run on smuggling alone. Older Nvidia GPUs stripped for parts and excess inventory from chip designers who scrapped projects also feed supply.

Apple is not the only buyer feeling it. Memory prices feed into phones, laptops and the servers that run AI models. Apple is competing with datacentres for the same memory.

The processor loophole

Tom's Hardware reported how that memory reaches China. A smuggler who owns a chip design firm builds cheap, low-performing processors that fall below the threshold of US and South Korean export controls. Those processors are paired with HBM from Samsung and SK hynix that is banned for export to China on its own. The rules look at the performance of the server processor, not at the other components attached to it. That lets the memory travel inside a package that counts as a legal export.

The packages land in Hong Kong and are carried into Shenzhen in the luggage of commuters who cross the border daily. In workshops there, technicians heat the boards to soften the solder, lift the memory chips and discard the rest. The failure rate is high. The price of HBM makes the work lucrative anyway.

Huawei pushes buyers to find memory

Huawei has told some customers to source the memory for its AI chips themselves, according to The Information, which effectively pushes buyers onto the black market. Huawei's Chinese suppliers cannot produce enough HBM. US export rules block direct purchases from Samsung and SK hynix. The company plans to launch the Ascend 960DT early next year, which it says will double the performance of its current chips.

That plan depends on memory Huawei cannot buy directly.

China's alternative and the enforcement bill

CXMT defended its bet on a risky new DRAM architecture meant to circumvent US chip curbs, the South China Morning Post reported.

Enforcement is lagging behind the trade. South Korea's customs authority had uncovered violations worth $560m by May, already above the previous full-year record. A third of that total involved strategic goods such as chips exported without proper authorisation or with false declarations.

How much smuggled HBM reaches China is not public. Nor is how long the shortage will last.

The two stories share a cause. Rules written around processor performance have left the memory market to price signals and to smugglers.