The storage manufacturers suppressed in price for twenty years are seeking “revenge” on Apple with the help of AI

The two-decade asymmetric game between flash memory suppliers and Apple is quietly being upended by the wave of artificial intelligence. Once able to push suppliers to the brink of losses with massive orders, Apple is now forced to confront soaring costs, while those long-frustrated storage manufacturers have finally gained bargaining chips of their own.

According to TechInsights data, in the past year, demand from AI hyperscale data centers has pushed flash memory prices up fivefold, with per-GB quotes rising from about $0.05 to over $0.30. Tech giants like Microsoft, Amazon, and Meta have already signed long-term supply contracts with Kioxia this year, agreeing to higher prices for stable supply.

According to estimates by The Wall Street Journal, Apple will spend about $25 billion on flash memory this year, while purchasing the same amount of storage in 2025 would only cost about $6 billion.

Apple executive chairman Tim Cook compared the sharp rise in memory chip prices to a "once-in-a-century flood", but media reports citing sources revealed that company leadership was completely unprepared—their long-standing belief was that they understood this market better than anyone. At the annual flash memory industry conference held this summer in Santa Clara, California, suppliers and their sales teams privately expressed their delight at Apple's weakening bargaining power.

Apple’s relationship with the flash memory industry began in 2001 with a meeting that changed the trajectory of the consumer electronics sector. Back then, engineers from the company then known as Toshiba (now Kioxia) demonstrated a 1.8-inch micro-hard drive to two Apple executives. Apple immediately secured exclusive rights to use the device in the iPod—a product that became a milestone for the company’s mainstream breakout.

In 2005, Apple launched the iPod Nano using flash chips and made $1.25 billion in prepayments to five suppliers to lock in supplies through 2010. Subsequently, with the explosive arrival of the iPhone and a sudden expansion in market scale, Apple captured more than a fifth of the world’s flash memory supply and became the largest global buyer by spending $3-4 billion annually.

The bargaining power brought by this scale was pushed by Apple to the extreme. Apple forced suppliers to list it as the “most favored customer” and conducted regular audits to ensure no competitor enjoyed lower prices. Apple even gained access to suppliers’ real-time factory production line data, enabling it to precisely judge bargaining bottom lines during negotiations.

Apple’s head of procurement, Tony Blevins, is known for his tough negotiation style, earning the nickname “Blevinator.” One of his common tactics was to refuse timely delivery after securing low-price orders—if market prices kept falling, Apple could use the opportunity to press prices even lower, while suppliers were forced to absorb inventory of custom chips. Kioxia executives privately referred to themselves as “Charlie Brown kicking the football,” hinting that Apple would always back out at the last moment.

Suppliers did try to fight back. Around 2015, SanDisk refused to increase Apple’s supply because other customers were willing to pay more. Blevins immediately threatened that SanDisk CEO Sanjay Mehrotra would “have to crawl back” to Apple.

Around 2017, as flash supply tightened, Western Digital (SanDisk’s parent company) demanded prepayments from Apple to lock in chip supply with no purchasing obligation. Blevins flew into a rage, wrote the date on his office whiteboard and circled it, then sent a picture to Western Digital executive Mike Cordano as a warning of retaliation.

When flash prices fell the following year, Cordano and colleague Jerry Kagele went to Apple’s office with a refund check as a goodwill gesture. Blevins not only demanded that the two promise never to ask for prepayments again, but also imposed punitive terms requiring Western Digital to pay for Apple’s chip testing services, with Apple under no obligation to buy any chips. Afterwards, the two were escorted out by Apple security.

In 2023, the entire industry hit rock bottom. Demand for devices induced by remote work during the pandemic faded, pushing flash prices to a historic low of $0.05 per GB. Bernstein Research estimated industry operating losses reached $19 billion that year, while Apple earned about $14 billion in gross profit from storage upgrades alone.

The storage upgrade business has long been one of Apple’s most profitable lines. According to The Wall Street Journal analysis, from the launch of the iPhone and iPad through 2025, for every dollar Apple collected in storage upgrade fees, it averaged over 80 cents in gross profit; for Mac products, the ratio is also close to 80 cents.

Take the iPhone 17 Pro set for release in 2025 as an example: consumers pay $200 to upgrade from 256GB to 512GB of storage, while Apple’s storage cost is only about $15, yielding a gross profit of $185. According to The Wall Street Journal, the same upgrade on the iPhone 18 Pro cost $66, compressing Apple’s gross profit to $134. For the 1TB upgrade, costs soared from $42 to $192, with Apple raising the retail price from $400 to $600. In 2026, Apple will offer a 2TB option on the iPhone 18 Pro for the first time, priced at $1,200, with storage costs around $450.

According to IDC estimates, about 100 million iPhone users purchased storage upgrades last year; at an 85% average gross margin, this single segment brought Apple over $10 billion in gross profit. Now, amid sharply rising costs, Apple has raised prices across nearly all product lines. The average iPhone price is up 13%, iPad Air 13-inch storage models increased by $150-250, and MacBook Pro 14-inch configurations by $200-400.

The structural shift in demand driven by the AI wave caught Apple off guard. Media reports citing insiders said that Apple’s top executives believed their understanding of the flash market was superior to any external analyst and failed to heed market warning signals. Flash prices tumbled from $68 per GB in 2005 to $0.05 in 2023—nearly two decades of one-way price decline reinforced this confidence, but left Apple passive when the trend reversed.

Hyperscale cloud providers are willing to accept higher prices because flash accounts for a relatively small proportion of their data center construction costs, and accounting rules let companies amortize expenses over multiple years. This contrasts sharply with Apple's cost sensitivity in consumer hardware.

For Apple, the current core uncertainty is whether consumers can absorb the continued rise in prices—will users delay their phone upgrades or scale back purchases as storage upgrades become pricier? For flash memory suppliers, it’s whether Apple can regain its bargaining initiative under changing market conditions.

TechInsights analyst Walt Coon said:

"Apple has always maintained a dominant position in negotiations with storage suppliers. Now, as the balance of power shifts, there is indeed a genuine sense of satisfaction among the suppliers."