One flash-chip salesman got so fed up with Apple (AAPL) that he took his old iPod into the desert on his dirt bike. Then he shot it with a rifle. He sold for Kioxia, a Japanese flash-memory maker. For years Apple bought more flash than anyone and leaned on suppliers for the lowest price. Flash is the chip that holds your photos and apps. Now four AI data-center builders together buy twice as much as Apple. Flash costs about five times what it did a year ago. The power has shifted, and buyers feel it at the checkout.
Rolfe Winkler's Page One story in Friday's Journal lays out the old deal. Flash makers had to name Apple a "most favored customer," so no one else got a lower price. Apple audited their books to make sure. Micron (MU) once sold flash to another customer for less. Apple won a settlement worth tens of millions over it, more than a decade ago. When prices fell, Apple sometimes refused delivery and left suppliers holding the chips. The low point came in 2023. Flash makers lost $19 billion that year, by Bernstein's estimate. Extra storage brought Apple $14 billion of gross profit.
Then AI arrived. Two years ago, Apple's flash orders were nearly double those of Microsoft, Amazon, Meta and Google put together, by TechInsights' estimate. Now those four buy twice as much as Apple. Meta, Microsoft and Amazon also locked in long-term Kioxia supply this year at higher prices. Flash that cost a nickel a gigabyte in 2023 now costs more than 30 cents. TechInsights expects Apple to pay about $25 billion this year for roughly the same amount of flash that cost it $6 billion in 2025. Tim Cook, Apple's executive chairman, called the climb in memory prices a "100-year flood."
What the $200 upgrade costs Apple
Here's the consumer math. Last year an iPhone 17 Pro buyer paid $200 to double the storage from 256 gigabytes. That storage cost Apple $15, by the Journal's analysis. This year it costs $66. The 1-terabyte step on the new 18 Pro costs buyers $600 and Apple $192. Through 2025, Apple kept more than 80 cents of gross profit on every dollar of iPhone and iPad storage. Roughly 100 million iPhone buyers paid for an upgrade last year, by IDC's estimate. At an 85% margin, that's more than $10 billion in gross profit, by the Journal's math. Apple has now raised prices. iPhones went up an average of 13%, older models included.
Our read
Two planning lessons here. First, Investments/Risk, IN04. The memory cycle has flipped pricing power to the chip makers. That's the case for Micron, held at weight in 23 of our model books. It's also why the slice stays modest. This same industry lost $19 billion in 2023, and a business that swings from a nickel to 30 cents a gigabyte can swing back. Apple is held at weight in 24 books. Nothing was added to either.
Second, Cash Flow, M5, and this one's yours. This week, open your phone's storage screen and see how much you actually use. If you're using less than half, you likely don't need the next size up when you replace it. That $200 step pads Apple's margin more than it helps you. The same goes for a laptop. Buy the storage you'll use and put the difference in the emergency fund. Memory costs more now because data centers outbid Apple for the chips, and some of that shows up on the price tag. You don't shop for a raincoat in the downpour. You buy the one you need before the season turns.