Apple and its past feuds with flash memory suppliers

Watching consumer electronics giant Apple fret over the surging storage costs, some storage suppliers that have long been squeezed on prices by this big customer are privately revealing a long-awaited sense of relief.

According to local media reports late Wednesday, this summer, at a large-scale flash memory industry conference held in Santa Clara, California, U.S., suppliers and their sales staff, in casual chats, made no attempt to hide their delight over the weakening of Apple's bargaining power. In the past, Apple, leveraging its massive procurement scale, imposed numerous harsh requirements on the supply chain.

What is reshaping the negotiation landscape now are large tech companies including Microsoft, Amazon, Meta and Google.

According to statistics from research institution TechInsights, over the past year, demand from AI giants has pushed flash memory prices up fivefold, bringing new opportunities to suppliers such as Kioxia. The change in procurement scale is equally notable: Two years ago, the amount of flash memory purchased by Apple was nearly twice the total of the four aforementioned companies; today, the combined procurement volume of these tech giants is twice that of Apple.

How Aggrieved Were They? A Sales Executive Shot and Smashed an iPod

For these manufacturers, Apple has always been a love-hate customer: its orders are large enough to keep factories running, but its procurement practices make suppliers feel that the vast majority of profits from the chips they painstakingly produce are taken away by Apple.

The report also mentions a rather dramatic story.

Scott Nelson, Executive Vice President and Chief Marketing Officer of Kioxia America, revealed that he once stopped while riding a dirt bike in the Southern California desert, took out a rifle, and smashed his old iPod. The fragments of that iPod were later kept by him on his desk for display.

He was responsible for selling flash memory to Apple, but long felt that he was at a disadvantage in the transactions, and even expressed his dissatisfaction by using Android phones.

Behind this sentiment is the starkly unequal profit distribution in the eyes of suppliers.

According to calculations, last year, when consumers bought the iPhone 17 Pro and upgraded the storage capacity from 256GB to 512GB, they needed to pay an extra $200, while Apple's additional cost for this portion of flash memory was only about $15. This means that for this single capacity upgrade tier alone, Apple could secure a gross profit of around $185.

This is not an isolated case for a specific model. According to estimates, from the launch of the iPhone and iPad respectively up to 2025, on average, more than 80 cents of every additional dollar Apple charged consumers for extra storage capacity turned into gross profit.

A more glaring contrast emerged in 2023. At that time, the boom in work-from-home devices during the pandemic faded, and flash memory prices fell to around 5 cents per GB. Bernstein estimated that the entire flash memory industry recorded an operating loss of about $19 billion that year; meanwhile, Apple's gross profit from selling additional storage capacity was around $14 billion.

Knowing Full Well Their Prices Are Squeezed, Why Can't Suppliers Afford to Leave Apple?

Mark Newman, an analyst at Bernstein, said that Apple and the flash memory industry have long shared a "love-hate relationship": For many years, Apple's orders have supported these manufacturers, but its ability to push down prices, while beneficial to Apple's shareholders, has left suppliers feeling shortchanged.

In 2005, Apple launched the flash-equipped iPod nano, and pre-paid $1.25 billion to five manufacturers to lock in flash memory supply through 2010. Suppliers saw the demand outlook and subsequently invested to expand production. The iPhone, which debuted in 2007, further expanded this market.

As the iPhone grew in popularity, Apple at one point purchased more than one-fifth of the global flash memory supply, spending $3 billion to $4 billion annually, making it the world's largest buyer.

For chip manufacturers, fabs require huge investment and carry high fixed costs, so they need sufficient orders to maintain capacity utilization. Even if Apple pushes prices down, its massive procurement volume still helps manufacturers spread costs and keep their factories operating.

Apple is well aware of its own weight, and is adept at turning suppliers' dependence on its orders into bargaining chips.

According to people familiar with the matter, flash memory suppliers usually have to list Apple as a "most favored customer" in their contracts, guaranteeing that no other buyer can get a lower price. To verify this, Apple also has the right to audit suppliers' accounts. More than a decade ago, Apple found that Micron had offered a lower price to another customer, and obtained tens of millions of dollars in settlement through arbitration.

Audits also allow Apple to figure out suppliers' operational bottom lines. According to people familiar with its procurement practices, Apple has access to operational information including the output of factory equipment, so as to judge how urgently each supplier needs a large order, and conducts negotiations accordingly. The audit frequency is so high that Apple even negotiated a bulk discount with the audit firm Deloitte.

It is not just the low prices that make suppliers miserable.

The report describes that another feature of Apple's procurement strategy is to avoid making rigid commitments as much as possible.

When flash memory prices fall, Apple sometimes refuses to take delivery after placing orders, leaving suppliers with a large backlog of chips, including even products customized for Apple. The result of the stalemate is often a further price cut from suppliers.

Suppliers have also tried to fight back, but the problem is that the storage chip industry has long been subject to cyclical fluctuations. Once the market turns downward, these companies have to bow to Apple again.

As early as the end of 2015, SanDisk rejected Apple's request for additional supply because it already had customers willing to pay higher prices. According to a person familiar with the call, Tony Blevins, then Apple's vice president of procurement, later told a SanDisk salesperson that he would make SanDisk's then CEO Sanjay Mehrotra "crawl back to Apple on his knees".

Blevins worked in procurement at Apple for 22 years, and left the company in 2022 after sparking controversy over inappropriate remarks he made in a video.

Around 2017, flash memory supply tightened, and Western Digital (note: the two companies were later split in February 2025 after the acquisition of SanDisk) further demanded that Apple pay a chip reservation fee, while not committing to guaranteed supply. According to people familiar with the matter, this enraged Blevins. He wrote the date of the day on the whiteboard in his office, circled it, took a photo and sent it to Mike Cordano, then President and Chief Operating Officer of Western Digital (note: Cordano is now Micron's Executive Vice President, Global Operations), and threatened to get even later.

A year later, as flash memory prices fell, Cordano and his colleagues came to Blevins' office with a refund check, hoping to repair the relationship. According to reports, Blevins asked them to promise not to charge reservation fees anymore, and the two reached an agreement with a handshake.

But the matter did not end there. As punishment, Blevins also proposed that if Western Digital wanted Apple to procure its flash memory chips, it would have to pay Apple for testing first, and even then, Apple had no obligation to purchase. He then had Apple's security personnel escort the two executives out of the office.

This Time, AI Giants Bring New Alternatives

What is reshaping the negotiation landscape now are large tech companies including Microsoft, Amazon, Meta and Google.

It is reported that two years ago, the scale of flash memory procured by Apple was nearly twice the total of the four aforementioned companies; today, the situation has reversed, and the combined procurement scale of these giants is about twice that of Apple.

More crucially, the new customers not only have huge demand, but are also willing to offer suppliers more secure contracts.

According to reports, Meta, Microsoft and Amazon signed agreements with Kioxia this year, locking in long-term supply by promising higher prices. These contracts can provide certain protection for Kioxia's profits when the market weakens.

For large data center operators, flash memory accounts for a relatively small proportion of the overall construction cost, and the relevant capital expenditures can also be depreciated and amortized over many years. This makes them more capable of bearing high prices than consumer electronics manufacturers.

Suppliers have thus obtained options that were hard to come by in the past: they no longer have to blindly accept Apple's proposed terms just to keep their factories running.

Apple, on the other hand, is facing a more expensive procurement bill. According to estimates, Apple will spend about $25 billion on flash memory this year, while it only spent about $6 billion to procure roughly the same volume in 2025.

This means that the flash memory cost for adding 256GB of capacity to the iPhone has now risen from about $15 to about $66. Even if consumers still pay an extra $200, the estimated gross profit corresponding to this upgrade will drop from $185 to $134.

Apple has already raised product prices to cope with the pressure, but the next question is: will consumers accept the price hikes, or choose to keep their old phones in use for a longer period?

For suppliers, what is truly worth celebrating is not just that Apple is paying more, but that the industry finally has a group of big customers that can compete with Apple for production capacity and are willing to provide long-term commitments.

However, whether suppliers can retain this bargaining advantage in the long run depends on how AI demand, capacity expansion and long-term contracts jointly reshape the supply and demand landscape of the flash memory industry.

In response to the report, Apple stated that the company has had decades of partnerships with many suppliers, values these partners greatly, and looks forward to continuing the cooperation.

This article is from the WeChat official account "CLS", Author: Shi Zhengcheng, published with authorization from 36Kr.