Morgan Stanley Research: Memory prices surge, impacting both Android and PC, but Apple won’t raise prices this year
Morgan Stanley believes a "cost storm" triggered by surging memory prices is sweeping across the global hardware industry.
According to Chase Wind Trading Desk, on January 6, Morgan Stanley research team led by Erik W Woodring published a report after their trip to Taiwan, noting that memory prices for 2026 are soaring at a faster-than-expected rate. The report forecasts that DRAM contract prices will rise 40-70% quarter-over-quarter in Q1, and NAND prices will rise 30-35%, both far exceeding previous expectations.
This cost pressure will have far-reaching impacts on the entire hardware industry. Most OEMs will significantly raise prices in the first half of 2026 to cope, possibly leading to a decline in annual shipments of Android phones and Windows PCs.
However, Apple, having locked in favorable memory prices in advance, has decided to keep product pricing unchanged, which may lead to increased market share for iPhone and Mac in 2026.
Hard disk drive (HDD) supply shortages are worsening, with the supply-demand gap set to widen to 200EB in the next 12 months. Server vendors like Dell and HP may soon initiate large-scale layoffs to protect operating margins.
Memory Price Surge Reshapes Industry Landscape
According to the latest TrendForce forecasts, DRAM contract prices are projected to rise 40-70% quarter-over-quarter in Q1 2026, compared to the previous expectation of just 15-23%. For NAND, contract prices are expected to rise 30-35%, also far surpassing earlier forecasts of 15-25%.
This cost pressure is forcing nearly all hardware OEMs, except Apple, to raise prices sharply in the first half of 2026.
The report notes that rising price expectations have led customers to pre-order, which is expected to deliver strong results in Q4 2025 and Q1 2026, but will later cause weak demand in the second half of 2026.
A server OEM expects general server shipments in Q1 2026 to grow 5% quarter-over-quarter, much better than the usual seasonal decline of 10-15%.
The PC market will also exhibit similar seasonal characteristics—strong in the first half, weak in the second half of the year.
Morgan Stanley predicts that throughout 2026, shipments of Android smartphones and Windows PCs will decline. Enterprise general server demand will remain flat or decrease year-over-year.
However, cloud service providers (CSPs) are benefiting from strong AI server demand and are requesting ODMs to increase general server shipments by over 30% year-over-year in 2026. This will drive overall general server shipments to rise about 10% year-over-year in 2026.
Apple’s Strategy: No Price Increase for Market Share
Contrary to industry trends, Apple has decided to keep product prices stable in 2026, even though its product profit margins will also be impacted by rising memory costs.
Through a partnership agreement with Kioxia, Apple has built up a NAND inventory before Q1 2026, securing relatively favorable prices. Although Kioxia may renegotiate contract prices in early 2026, Apple has already taken the lead.
In terms of DRAM procurement, Apple is still negotiating Q1 2026 prices with memory suppliers. Since Apple secured favorable memory prices early, suppliers may raise prices by over 50% for Apple in Q1 to catch up with market levels.
Crucially, Apple’s decision to keep product prices unchanged will help iPhone and Mac gain market share in 2026. Early supply chain data indicate iPhone shipments will be flat or slightly up in 2026, with Mac shipments increasing year-over-year.
Additionally, Apple plans to launch a $599 low-cost MacBook in the first half of 2026 featuring an A19 processor, further helping Apple take PC market share.
The report notes that the iPhone is performing strongly in the Chinese market, with sales in December 2025 up 20-40% year-over-year. Driven by robust iPhone 17 demand, Apple increased wafer orders from TSMC at the end of October and November 2025. This was also prompted by tight 3nm wafer supplies. These additional orders will be delivered across multiple quarters, expected in March and June.
In terms of product strategy, Apple will adjust its iPhone launch timetable: The iPhone 18 Pro, Pro Max, and foldable iPhone will launch in fall 2026, while the standard iPhone 18, 18e, and Air 2 will be postponed to spring 2027. The first full-year shipment target for the foldable iPhone is 15-20 million units, with a production target of 7-8 million units for the second half of 2026.
HDD Supply Crisis Escalates: Shortage Widens to 200EB
HDD shortages are worsening, with the supply gap in the next 12 months widening to 200EB, compared to the 100-150EB forecast three months ago.
In response to the severe HDD shortage, hyperscale cloud service providers are taking temporary measures to use enterprise SSDs (eSSD) to partially meet storage needs.
However, the report notes that from a total cost of ownership (TCO) perspective, the efficiency of eSSD is much lower than HDDs, so this is only a stopgap, not a fundamental shift in data center architecture.
Though storage chip makers have attempted to lower eSSD unit capacity cost ($/GB) in hopes of replacing HDDs as early as 2028, the cost gap remains substantial.
By the end of Q4 2025, NAND flash costs (core to eSSD) per GB are already well above $0.10, while average HDD costs are only about $0.013 per GB, meaning eSSD purchase costs can be up to 10 times higher than HDDs.
Thus, the strategy of using high-layer-count (400+ layers) NAND and eSSD to replace HDDs is no longer a focus for storage chip makers.
It is noteworthy that HDD manufacturers are unwilling to expand overall capacity, but are reallocating production from consumer/client applications (like PCs) to cloud/nearline storage to meet growing cloud demand.
Seagate (STX) is raising consumer/client HDD prices by 10% each quarter to align profit levels with its more profitable nearline HDD business.
OEM Responses: Layoffs and Cost-Cutting in Parallel
Morgan Stanley believes mounting cost pressures will force OEMs such as Dell, HP, and HPE to make large-scale layoffs to protect operating margins.
Similar to the 2017-2018 memory supercycle, Dell plans to begin layoffs as early as January 2026, focusing on non-AI teams, and will start using AI to boost productivity and decrease internal team size. Second-tier OEMs face greater challenges due to weaker balance sheets and less pricing power in the supply chain.
On the product side, PC OEMs are lowering bill of materials costs. Many 512GB storage configurations are being replaced with 256GB options. Vendors are keeping entry-level model prices unchanged by sharing costs with component suppliers or using cheaper components to maintain profitability.
In memory procurement, Dell has a better bargaining position than HP due to AI and general server memory demand. Dell and Lenovo are willing to sign long-term agreements with memory manufacturers, while HP remains hesitant, putting it at a disadvantage in securing memory supply.
Memory makers prioritize supply to large PC OEMs (Dell, HP, Lenovo, Asus). Smaller brands face greater difficulty securing supply and are at risk from spot pricing.
For the AI server market, the report notes strong demand but thin profits.
xAI placed an order with Dell for 3,000 GB300 rack units in late November, due to be delivered in Q1 (April quarter). Together with CoreWeave’s 1,000 racks, Dell could deliver up to 4,000 GB300 racks in Q1. More Neocloud players and sovereign AI projects are continually increasing orders.
However, AI server gross margins remain in the mid-single digits, with pricing competition continuing among major vendors (Dell, HPE, Supermicro).HPE has deprioritized its AI server business due to low margins, while Supermicro remains aggressive on pricing, putting recent pressure on Dell.
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