Apple's Stock Drops Nearly 10%. How Will It Respond to Memory Shortage?

Apple's stock experienced a nearly 10% decline on Friday as the company's CEO, Tim Cook, warned about the adverse effects of the global memory shortage on the business. During the latest earnings call, Cook revealed that Apple had to pay significantly more for memory components in the third quarter and expects this trend to continue in the current period. Although the company is able to offset some of the price increase, it cannot tackle it all due to limited flexibility in the supply chain.

The shortage has impacted iPhone and Mac sales more than expected, prompting concerns about Apple's ability to maintain its current growth trajectory. Analysts predict that Apple's gross margins for iPhones could drop from 38% to 34.5%, while others suggest that the company may need to raise iPhone prices to counteract the effects of the memory shortage.

The situation has even raised political concerns, with U.S. senators from both parties urging Apple CEO Tim Cook to commit by August 21 not to use memory chips from Chinese suppliers, CXMT and YMTC. Apple is not legally required to obtain U.S. government approval for purchasing chips from these companies, but doing so without the administration's support could expose the company to political ramifications.

As potential alternatives, Bloomberg reports that Apple is exploring the possibility of using components from Chinese suppliers in products sold outside the U.S., seeking the administration's blessing for this approach. However, Micron has urged the administration to reject Apple's request, citing concerns that allowing Chinese suppliers into Apple's supply chain could undermine domestic memory production.

Despite these challenges, Apple appears to be largely unaffected by the volatility seen in the share prices of chipmakers and companies heavily investing in artificial intelligence. The company remains a dominant player in the tech industry, with Tim Cook's retirement after 15 years at the helm adding another layer of uncertainty to the situation.