Apple (AAPL) reported blowout first quarter results after the bell on Thursday, on the back of all-time record iPhone sales, which, in turn, drove all-time record revenue for the company.
But it wasn’t all good news in Cupertino.
Apple CEO Tim Cook acknowledged that the global memory chip shortage is hitting the company, saying he expects to see an impact in the current quarter and beyond. The company is projecting Q2 margins between 48% and 49%, roughly flat over the prior quarter and similar to the margins during the last two years in the same period.
But memory chip prices, Cook said, are expected to increase “significantly” in the coming quarters, which could force Apple to either swallow the increased costs — cutting into its future margins — or raise the price of its phones.
The company is also contending with a supply shortage of the advanced processors that power its iPhone 17, as demand for tech hardware of almost any shape and size from the AI build-out pressures global supply chains.
“We exited the December quarter with very lean channel inventory due to that staggering level of demand. And based on that, we’re in a supply chase mode to meet the very high levels of customer demand,” Cook explained.
“The constraints that we have are driven by the availability of the advanced nodes that our [systems-on-a-chip] are produced on. At this time, we’re seeing less flexibility in the supply chain than normal.”
Apple’s Q1 sales topped out at $143.8 billion, well ahead of Wall Street estimates of $138.4 billion, with the iPhone accounting for $85.3 billion of the top line number.
“The demand for iPhone was simply staggering, with revenue growing 23% year-over-year and all-time records across every geographic segment,” Cook said on the company’s earnings call.
But supply constraints could restrict how many iPhones Apple can build and sell in the coming quarters, putting an artificial cap on revenue for now.
Apple’s memory chip issues can be traced back to the tech industry’s worldwide AI data center build-out.
AI data centers are made up of hundreds of large, rectangular server racks, which themselves contain thousands of servers. Each server is essentially an individual, high-powered computer that communicates with all the other servers on the rack.
Like any high-speed computer, each server requires memory, and because tech companies are racing to build data centers as fast as they can, they’re buying up huge amounts of memory chips.
The problem for Apple, and every other tech company not in the data center game, is that data center memory uses the same components as memory used in smartphones, PCs, cars, medical equipment, or anything else that’s a computer, creating scarcity, which drives up memory prices.