AI is eating your phone's memory and hiking up prices. No, festive sales can't save you either

**Rachel Varghese** (0:00)
Just last week, on Thursday morning, Wall Street Journal reported that Apple had hiked up the prices on Macs and iPads by up to $200 or more. Now while iPhone prices were unchanged at the moment, in a separate statement, the company said that it had now reached a point where it needed to begin raising prices. And that it had never seen a component price increase this much, this quickly. Now, if you're wondering what component Apple is referring to, it's talking about storage and memory. You see, as AI companies around the world have kept buying up memory chips, there has been a shortage of those same storage components for consumer product use. And that shortage is now driving up the cost for what memory is available. And companies are passing on their increased manufacturing costs on to you. And it's not just Apple. Brands like Xiaomi, OPPO, Vivo, OnePlus, etc. All brands which are very popular in India for their cheap phones have all seen hikes of at least 1000 rupees for their budget phones. You know, the ones that sell for 15 to 30 thousand rupees.
Now it's not like price hikes for phones are new. They happen almost every cycle.
And because they are so routine, there's a very specific way that the famously price-sensitive Indian consumer likes to go about the way they upgrade. Any Indian phone owner with a cracked screen, a lagging interface or diminishing storage knows the drill that an upgrade should wait till the festive season. Starting from Independence Day on August 15th to Diwali in October and Christmas and New Year at the end of the year, Indians crowd e-commerce platforms to gift themselves and their loved ones the latest in tech products, appliances and much more. Obviously, the season is just as exciting for the companies. Every retailer and brand is racing to give shoppers the best deals. And, of course, they would, considering that the festive period is exactly what contributes to more than a quarter of the $42 billion smartphone market's revenues. But analysts who have been tracking the sector for decades are warning that there's really something different about the price hike cycle this time. Avril Wu, a senior research vice president at Trendforce, a research company, said in a WSJ report that this was the craziest time ever.
Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese, and every day of the week, my co-host, Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 1st of July.
Now, if you're still a little unclear on what the AI boom has got to do with the increasing crisis of smartphones, then here's what's going on. Trendforce, a research firm, reported early this year that both conventional and AI data centers are going to consume more than 70% of the high-end memory chips all manufacturers will produce in 2026
This is what has triggered this shortage, which IDC, or the International Data Corporation, in a report from late last year noted was not just any typical shortage that comes along in cycles. Here's what has changed significantly this time around. Three companies that control over 90% of the memory component production, which are Samsung, SK Hynix and Micron, have systematically been reallocating their manufacturing capacity toward HBM or High Bandwidth Memory Chips. These chips are used specifically in AI accelerators. And the reallocation of resources means that consumer level memory components called DRAM and NAND Flash are now under a very critical supply crunch. By the way, DRAM stands for Dynamic Access Random Memory and it's basically the space your phone uses when it's running different apps. The more RAM your phone has, the better it handles more tasks without slowing or lagging down. NAND on the other hand is your classic storage space. It's where your photos, videos, apps and files go. That's basically what you're looking at when you're choosing between a 128 GB and 256 GB phone. There are less complex versions of the HBM chips, which like I said earlier is what a lot of AI companies need for their data centers. A Bloomberg report mentioned that tech giants are paying very lucrative premiums to the companies that make these chips so that they can guarantee future supply through multi-year contracts. Obviously, the makers of these chips are prioritizing these high margin orders and not the others. The result is what you're seeing right now. Either through an increase in prices like Tim Cook, Apple's CEO warned would happen when he announced in an interview with WSJ that price increases are now unavoidable and unsustainable for Apple to absorb. Or it reflects in the quality of phones, with manufacturers cutting corners in one aspect to cover up for the other. Take one of Samsung's most recent releases, the A27. It saw a $50 price increase from the model that came before it, the A26. The Verge reported that the price hack, though not steep but sizable for a mid-budget phone, seemed unjustifiable, since the phone also came with a drop in camera quality, worse waterproofing and a thicker body.