Apple faces a major supply chain test due to a sharp memory shortage. CEO John Ternus said, “What we’re seeing with memory pricing right now is unprecedented.” Apple got hit by rising costs, forcing inventory to jump to $10.4 billion. Many experts expect these high prices to continue for now.
But desperate times call for desperate measures and though the Tao of Cook remains, even Apple has had to bend to the realities of the 2026 memory shortage.
Ever since Cook took over Apple’s manufacturing chain, Apple has run an incredibly lean operation, especially considering it’s a company that sold a billion dollars a day in devices during fiscal year 2026, which just ended. Apple’s strategy has been to insulate itself from the cyclical nature of chip production by loading up when prices are bottoming, and let that inventory keep its cost-of-goods-sold (COGS) low later on. This has worked out splendidly, most recently in the brutal crash in memory prices in 2022 to 2023.
But now Apple and others who copy its supply chain practices are on the other end of the stick. Because that downturn was so severe, the memory makers—primarily Micron, Samsung Electronics, and SK Hynix—were loath to start investing in new factories at the same time they were booking massive inventory charges and negative gross margins.
Had those factories been built, they would be running at full capacity now, straining to meet the huge memory demands of the generational investments into AI data centers. But new capacity only begins to trickle in next year. In the meanwhile, there is an acute shortage, memory and storage chip prices have risen at the fastest rate ever, and they continue to climb.
“What we’re seeing with memory pricing right now is unprecedented,” said newly-minted Apple CEO John Ternus on the company’s Monday fourth-quarter earnings call, his first as the company’s leader.
Apple projected that its first-quarter gross profit margin will decline sequentially by 1.4 percentage points to 45% to 46%, after excluding tariff refunds. “We expect most of that decline to be driven by higher memory costs,” said chief financial officer Kevan Parekh on the call.
Memory costs continue to rise sequentially for Apple, and its ability to offset that from its existing chip inventories is dwindling. Ternus said memory prices would keep increasing in the current quarter and beyond.
Apple has had to adjust to the new reality. We can see this shift in Apple’s fourth-quarter balance sheet. In 2025, Apple only had only $2.1 billion in component inventories, and a year later that had nearly quintupled to $10.4 billion. Moreover, Apple counts inventory it has purchased and transferred to contract manufacturers as “vendor non-trade receivables.” These rose by another $6.7 billion for a total increase of $15 billion.
The company also added $33 billion to its manufacturing purchase obligations, to nearly $90 billion in September. In last year’s annual report, Apple said that these supply agreements “cover the company’s forecasted component and manufacturing requirements, typically for periods up to 150 days.”
In the 2026 edition, Apple dropped the language about the terms of these obligations, so they may have lengthened. Apple expects to use 92%–$83 billion–of this supply in the next 12 months. It’s a large number, but also not that big by Apple’s scale. Wall Street analysts are projecting nearly a quarter of a trillion dollars in COGS in fiscal 2027. Even after the changes, Apple still runs a lean supply chain.