With memory and storage chip pricing out of hand, Apple turns to blacklisted supplier
Apple reportedly asked the White House for permission to buy chips from China's largest memory chip supplier.
Apple turns to blacklisted chipmaker for memory chips | Image by PhoneArena
It's all over the news. Am I referring to the Miami Heat trading for Giannis Antetokounmpo and the Florida Panthers acquiring Brady Tkachuk? Well, both mean a lot to me but probably not you. What actually concerns all of us is the incredible shortage of memory and storage chips thanks to the massive buildout of AI data centers.
Apple is no longer TSMC's number one client
It's hard to believe, but Apple is no longer TSMC's number one customer. The tech giant has been replaced by a bigger tech giant, at least for the moment, and that is Nvidia. Demand for AI accelerators has been driving Nvidia's impressive growth. These are optimized GPUs that feature stacked High-Bandwidth Memory (HBM) chips allowing the AI accelerators to process huge amounts of AI data at incredibly fast speeds.
Nvidia now makes up approximately 19% to 22% of TSMC's revenue compared to the 18% of the foundry's earnings that Apple is responsible for. TSMC still produces more chips for Apple than Nvidia, but the latter's chips are so complex that they can cost $30,000 to $40,000 for a single one.
Heavy demand for High-Bandwidth memory and NAND storage chips is hiking the price of chips for smartphones
The current demand for HBM chips and NAND data chips for AI data centers is preventing phone manufacturers from sourcing memory and storage chips, respectively. And when they can find a supply of these components, the price is often sharply higher. I've stated before that this is the simple supply-demand calculation that you learn in ECON 101 or from watching all five seasons of "Breaking Bad."
What other option would you prefer Apple choose?
With demand for memory and storage chips rising, and supply failing to meet that demand, prices for these components will be high. Things are so bad that Apple has asked the White House for permission to buy memory chips from a company called ChangXin Memory Technologies. CXMT is China's largest memory chipmaker and was designated a Chinese military company by the Biden administration's Defense Department placing it on the Chinese Military Company Blacklist.
Apple can still buy chips from CXMT but seeks permission for political reasons
To put it in layman's terms, CXMT is believed to have a connection with the People's Liberation Army, the primary armed forces of the People's Republic of China. It is considered to be a threat to U.S. National Security. Despite this, Apple is not barred from buying chips from CXMT but is asking for clearance from the White House anyway just to make sure there is no issue with any chip purchases from the company.
Apple seeks White House permission to buy memory chips from CXMT. | Image by CXMT
Last year, the Commerce Department wanted to place CXMT on the Entity List, the same list that Huawei is on. Had this happened, U.S. firms would have been banned from shipping goods, software, and technology to the chipmaker without a license from the Commerce Department. Since the Administration was negotiating with China at the time, it asked the Commerce Department to hold off adding CXMT to the Entity List, although that could be changed at any time.
Apple ended up raising prices on iPads, MacBooks, and other devices
Where Apple could lose business is with the Defense Department, which is not allowed to purchase products from third parties that use components made by firms on the Chinese Military Company Blacklist. Apple's plea to the Trump Administration, made over a month ago, asks for permission to buy memory chips from CXMT to help reduce the pressure on the tech giant due to higher memory chip prices.
Last week, Apple announced a price hike on some products including iPads and MacBooks. That came shortly after CEO Tim Cook said that Apple would have to raise prices because of the hike in the costs of memory and storage chips.
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