RAM and Storage Price Rises: Do they only protect Apple's profits?

[ResolutionNZ]

Source: Notebookcheck
Apple-CEO Tim Cook has officially confirmed that price increases due to the DRAM crisis would be “unavoidable,” after the costs of RAM and NAND flash memory have risen dramatically since last October. Yet Apple would be well-equipped to weather crises thanks to its formerly extremely high profit margins on RAM and SSDs.
As a comparison of Apple’s current RAM and SSD prices with those of brand-name products on the open market shows, a price increase would by no means be necessary to cover costs, meaning that Apple would primarily be using higher prices to protect its profit margins. Since M.2 SSDs and RAM on SO-DIMMs are not technically identical to Apple’s soldered chips, this comparison serves only as a rough guide to contrast current DRAM and NAND prices with the upgrade costs in the Apple Store.
As the comparison shows, Apple still charges roughly twice as much for most RAM upgrades as one would pay on the open market. The difference is even more striking when it comes to flash storage. While a 4 TB M.2 PCIe 4.0 SSD from a brand-name manufacturer currently costs around $459, Apple charges $1,200.

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	Apple Price	Market Price
8 GB RAM	$200	$120
16 GB RAM	$400	$185
24 GB RAM	$400	$199
64 GB RAM	$800	$639
512 GB SSD	$200	$99
1 TB SSD	$400	$169
2 TB SSD	$600	$299
4 TB SSD	$1,200	$459

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Apple has not yet confirmed how much the planned price increases will be. What is certain, however, is that Apple is achieving very high profit margins on RAM and SSD upgrades even without price increases, despite the DRAM crisis.

Does Apple really have an excuse for raising prices on these components?

 

[kschendel]

For starters, those numbers don't match anything I see on the Apple Store.

Incremental prices only apply to the relatively small percentage of buyers who choose the increment. The real problem for Apple is the 4-5x increase in the cost to Apple of the base memory and storage chips. Yes, I can believe that they have to raise prices to maintain something resembling a decent profit margin.

 

[maflynn]

Does Apple really have an excuse for raising prices on these components?

Their "excuse" as you call it, is that components that are used in the creation of their products are now more expensive, and as such they are passing that increase on to the customer.

If I was looking to buy a brand new house, but the price of lumber increased, is it an excuse that the builder raised the price?

Its basic economics - manufactoring costs go up, the price goes up

 

[Isamilis]

Don’t forget “Apple tax”

 

[theorist9]

For starters, those numbers don't match anything I see on the Apple Store.

Incremental prices only apply to the relatively small percentage of buyers who choose the increment. The real problem for Apple is the 4-5x increase in the cost to Apple of the base memory and storage chips. Yes, I can believe that they have to raise prices to maintain something resembling a decent profit margin.

I don't think it's a "relatively small [emphasis mine] percentage of buyers who choose the increment", since Apple depends on those for its profit margins (i.e., it gets the students/economy-conscious buyers into its ecosystem with the base models, but relies on the customers who buy the higher-spec'd units to maintain profit).

But otherwise, I agree. Apple's upcharge prices for storage and RAM are so high that, even at post-AI-boom OEM prices, they can still make a good profit. [I checked, and Apple's pre-AI upcharge prices for RAM are so high that they exceed Dell's post-AI upcharge prices. I expect it's the same for strorage.] It's instead, as you say, the base models where they'll be challenged, since those don't have as much built-in cushion.

But then question becomes: Will they raise the base model prices only, or the upcharge prices as well?

I forget exactly what the ratio was between Apple's estimated OEM prices and their retail prices for added storage and RAM, but I vaguely recall (pre-AI) that it was on the order of tenfold. If they want to maintain that kind of profit margin with current OEM prices, then those upcharge prices are going to go through the roof.

E.g., if OEM prices on the RAM and storage that Apple uses have actually increased 4-5 fold as you claimed, then their upcharge for 16 GB -> 32 GB RAM and 1 TB -> 2 TB storage would each need to go from $400 to $1,600–$2,000.

I don't think Apple will find it practical to do that; instead, I expect they will decide that, to maximize total profit, they will need to sacrifice percent profit—at least until all the new wafer plants come online and OEM RAM and strorage prices return to their pre-AI relative levels (which may not be until 2030).