Apple has significantly raised its purchase commitments for manufacturing components as memory prices increase and supply constraints cause headaches in its manufacturing operations. In the third and fourth quarters of fiscal 2026, the company increased these obligations by $33 billion, pointing to the increasing challenges in obtaining enough memory components for its iPhone, iPad, and Mac products.

During the company’s Nov. 2 earnings call, executives said the company had availability constraints and rising component costs during the fourth quarter. “We’re in a unique position in the memory market right now,” said CEO John Ternus, referring to the challenges manufacturers have in obtaining a stable supply and managing procurement costs.

Apple did pull some inventory from the previous quarter to cushion the financial blow. It also reduced costs on components other than memory and increased prices on some products. But these were some offset to some part of the added costs but did not entirely relieve the pressure.

Long-term supply contracts are growing in importance

Apple did not provide details on how the extra $33 billion in manufacturing purchase commitments will be used, but the increase could indicate a shift in its procurement strategy.

“Apple is likely looking at longer term contracts with memory suppliers to hedge its manufacturing operations against shortages,” said Phil Solis, IDC research director. In the past, component availability was easier, and shorter term purchasing contracts were adequate.

The larger electronics industry is facing similar problems. Companies that buy memory are being forced to re-evaluate their sourcing arrangements to ensure more predictable pricing and access to components.

“The shortage in the market has given memory suppliers more leverage to negotiate,” Solis said. This imbalance makes it hard for manufacturers that increasingly depend on reliable deliveries of components to source them.

Heavy investment in artificial intelligence applications and the data centers that run them have only made that situation worse. The demand for AI infrastructure has driven memory prices up by as much as 400% compared to two years ago, which has put a lot of pressure on supply chains for consumer electronics.

APPLE’s margins are being squeezed by rising component costs

Apple has already taken a profit hit from the rising cost of memory.

During the earnings discussion, Senior Vise President and CFO Kevan Parekh said the impact of higher memory costs on the company’s gross margin between the third and fourth quarters was roughly one percentage point.

Apple's gross margin fell 2.2 percentage points to 47.9% in the fourth quarter, from 50.1% in the third quarter.

The outlook for the current quarter is also dimmer. The company expects gross margins to be in the range of 45% to 46% with higher memory procurement costs being the primary reason for the expected decline.

Ternus said some protection against further cost increases in the current quarter should be provided by inventory carried over from the fourth quarter. But this edge is likely to erode with time.

Apple expects memory buying prices to continue to rise after the December quarter. Inventory that has already accumulated will provide a diminishing financial benefit over the next few quarters, Ternus said.

Moving to 2-nanometer technology could ease processor constraints

Apple is also expecting better availability of systems-on-a-chip (SoCs), processors that integrate multiple computing functions into a single component.

“We expect the supply constraints on these processors will ease,” Senior Vise President and COO Sabih Khan said as the company transitions to a more advanced 2-nanometer manufacturing process.

The change may allow Apple more flexibility in sourcing the processors it needs for its devices. The current AI server market is using the older 3-nanometer technology, which may temporally reduce competition for capacity in the more advanced manufacturing segment, said Phil Solis of IDC.

AI servers are already gobbling up an ever-larger share of 3-nanometer production capacity, especially the processors and accelerators needed to run them.

That means smartphone makers like Apple could get a temporary reprieve from shifting to 2-nanometer chips where supply pressure is not as acute.

However, this situation may not last forever. Solis warned that the edge could be lost as AI server makers also start moving to 2-nanometer technology.

“Rising memory prices, tighter component availability and growing competition from AI infrastructure are a major supply chain challenge for Apple.” Greater purchasing commitments and more advanced manufacturing capacity may help shield production continuity, but the company is likely to continue facing elevated component costs in the coming quarters.