The Beleaguered Chip Sellers Getting Their Revenge on Apple
The iPhone maker for years bullied flash-storage makers into steep discounts—until AI hyperscalers bid up prices and gobbled up supply
During a ride in a Southern California desert, sales executive Scott Nelson stopped his dirt bike, pulled out a rifle and shot his old iPod.
Nelson sold flash storage to Apple AAPL -0.94%decrease; down pointing triangle and hated feeling like he always got the worst end of the deal. His Japan-based manufacturer, Kioxia, had little leverage. Apple was the world’s biggest buyer of flash—the chips in iPhones that store photos, music and apps—and used its position to squeeze every cent from suppliers. Apple bullied flash makers into opening their books so it could monitor sales, making sure no one else got a better deal.
Kioxia and other flash makers stewed as Apple paid them pennies for flash storage that the iPhone maker resold to customers for dollars. The disparity in bargaining power had galled Nelson, who used Android phones in protest.
Nelson kept the broken pieces of his iPod, the first Apple device to use flash. They sit on his desk and hold a special reverence now that the tables have turned.
In the past year, demand by AI hyperscalers has quintupled prices for flash, according to research firm TechInsights, opening a new era for Kioxia and other suppliers. Two years ago, Apple bought nearly twice the flash storage of Microsoft, Amazon, Meta and Google combined, according to TechInsights estimates. Hyperscalers are now buying double Apple’s share.
Flash memory suppliers and their sales teams privately expressed their glee at Apple’s comeuppance during chitchat at the industry’s largest conference this summer in Santa Clara, Calif. AI deals have given Kioxia sales executives and other flash suppliers new leverage to charge Apple higher prices.
Meta, Microsoft and Amazon signed contracts with Kioxia this year to secure long-term supply by committing to higher prices. The contracts protect Kioxia’s profits if the market turns. The company declined to comment.
Hyperscalers can afford to pay more. Flash storage is a smaller part of building a data center than making an iPhone, and accounting rules allow companies to spread the cost over years.
Apple is expected to spend $25 billion on flash storage this year for about the same amount it bought for $6 billion in 2025, according to estimates by TechInsights. Tim Cook, Apple’s executive chairman, compared escalating memory chip prices to a “100-year flood.”
Yet Apple had ignored analysts’ warnings and was caught off guard, said people familiar with the company’s procurement practices.
Company executives believed they knew the market better than anyone else, the people said. Flash that cost $68 a gigabyte in 2005 had fallen to a nickel by 2023. Now, demand by the AI industry has lifted the price to more than 30 cents a gigabyte, a 550% jump, threatening Apple’s steep profit margins from selling extra storage.
Buyers of the iPhone 17 Pro paid Apple $200 last year for double the storage of its 256-gigabyte base model. The extra storage at the time cost Apple $15 and has since shot up to $66, according to an analysis by The Wall Street Journal.
“Apple has historically driven a very hard bargain with memory suppliers,” said Walt Coon, an analyst at TechInsights. “And there’s no shortage of satisfaction among suppliers now that the balance of power is shifting.”
“We’ve worked with many of our suppliers for decades, and we deeply value their partnership over the years,” Apple said in statement. “We look forward to continuing our important work together.”
Apple recorded an average gross profit of more than 80 cents for every dollar it charged iPhone and iPad buyers for extra storage since it first released those devices through 2025, the Journal found. For Mac computers sold since 2010, it averaged nearly 80 cents.
In recent months, Apple raised prices for nearly all of its products. Prices rose an average of 13% for iPhones, an increase that included older models which typically get a price cut.
The question for Apple is whether consumers will react to the higher prices by keeping their iPhones longer or whether they will continue to buy at their usual pace. For flash-storage makers, the question is when—or if—Apple will regain its flash-market leverage.
“It’s been a love-hate relationship between Apple and the flash industry,” said Mark Newman, an analyst with Bernstein Research. Apple has sustained the manufacturers for years, he said, but its power to cap prices, while beneficial to shareholders, left suppliers feeling “screwed.”
Commitment-phobe
In 2001, engineers at Kioxia, then called Toshiba, showed two Apple executives a 1.8-inch-diameter, 5-gigabyte hard drive they had developed but didn’t yet know what to do with.
The Apple executives knew right away that it would be perfect for their stealth project, said a person familiar with the meeting. Apple bought exclusive rights to the tiny hard drive, which became the heart of the iPod, the company’s breakout hit.
Data storage took another leap forward with flash technology, which proved even better for consumer devices. Unlike hard drives containing spinning disks that can break, flash is a chip with no moving parts. It is also smaller, holds more data and requires less power.
Apple used flash to launch the iPod Nano in 2005, a music player thinner than a pencil. At the time, Apple prepaid $1.25 billion for flash supply through 2010 from five companies. Suppliers, seeing opportunity, built more factories. In June 2007, the company released the iPhone, a flash-based smartphone that revolutionized consumer electronics.
As the iPhone took off, Apple staked a claim on more than a fifth of the world’s flash supply, spending $3 billion to $4 billion a year, according to TechInsights, and became the world’s largest buyer.
Apple’s appetite for flash storage swelled its leverage, and suppliers acquiesced to its demands for the lowest prices in the industry. Flash makers benefited from Apple’s massive orders because the high fixed costs of chip manufacturing required factories to operate at capacity to make money.
The company had another hardball tactic: Avoid commitments. After ordering flash at rock-bottom prices, Apple would refuse delivery at times if flash prices were falling. That left suppliers holding piles of unsold chips, including ones custom-made for Apple. Kioxia executives joked they felt like Charlie Brown trying to kick the football—with Lucy always pulling it away.
The standoff often ended with suppliers further cutting Apple’s prices.
The executive behind that strategy, Tony Blevins, was Apple’s head of procurement. He became known as the Blevinator for clever negotiating tactics—or ruthless ones, said suppliers.
Blevins, who left Apple in 2022, sometimes set up back-to-back meetings with suppliers so that rival sales teams might run into each other, stoking competitive tension. Sales representatives learned to pack nutrition bars to sustain them through negotiating sessions that Apple executives sometimes pushed past midnight without a dinner break. Blevins’s bad-cop reputation gave his staff leverage: They threatened to call him in if contract terms weren’t to their liking.
One significant contract term allowed Apple to audit its suppliers’ books. Flash makers typically had to designate Apple as a “most favored customer,” which guaranteed that no other buyer got a lower price, according to people familiar with the agreements. Apple’s audits allowed it to verify that no one paid less.
Apple caught Micron selling flash at cheaper prices to another customer and won an arbitration settlement worth tens of millions of dollars more than a decade ago, said people familiar with the dispute. Apple audited its suppliers so often that Blevins negotiated a volume discount with the auditor, Deloitte.
Apple’s audits also gave the iPhone maker firsthand knowledge of flash suppliers’ business operations, including the output of machines on the factory floor, according to the people familiar with the company’s procurement practices. That allowed Apple negotiators to determine how badly each supplier needed a big order, those people said.
Long memory
Roughly 100 million iPhone buyers paid for storage upgrades last year, according to IDC estimates, seeking a cushion to support high-resolution videos, content downloads, text attachments and data-hungry apps.
Many paid $200 for an extra 256 gigabytes and as much as $800 for an extra 1.75 terabytes. At an 85% margin, that translates to more than $10 billion in gross profit, according to the Journal analysis. Mac and iPad buyers also upgrade storage capacity, adding billions of dollars more. When devices run out of space, Apple charges for monthly iCloud storage.
Flash suppliers have tried to gain the upper hand over the years.
Around the end of 2015, Sandisk refused Apple’s requests to send additional supply because it already had customers willing to pay more. Blevins threatened a Sandisk salesman with retaliation, saying he would have Sandisk’s chief executive, Sanjay Mehrotra, “crawl on his knees” back to Apple, according to a person familiar with the call.
Former Apple executive Tony Blevins at his Florida home in November 2022.
Former Apple executive Tony Blevins at his Florida home in November 2022. James Jackman for WSJ
When flash supplies tightened around 2017, Western Digital, Sandisk’s new owner, required Apple to pay a fee to reserve flash chips without committing to sell it any, said people familiar with the strategy.
Blevins was apoplectic. He wrote the date on his office whiteboard and circled it, texting a photo to Western Digital executive Mike Cordano and promising payback, according to people familiar with the exchange.
Blevins got his chance when flash prices fell a year later. Cordano and his colleague Jerry Kagele went to Blevins’s office with a refund check as a peace offering, according to people familiar with the meeting. Blevins demanded they never ask for a reservation fee again, which the men agreed to in a handshake deal, people familiar with the interaction said.
As a punishment, he told the men that if Western Digital wanted Apple to buy its flash chips, it would have to pay the iPhone maker to test them, the people familiar said. Even then, Apple wasn’t obligated to buy any.
Blevins then had them escorted out by Apple security.
The industry’s low point came in 2023. The Covid-era, work-from-home device boom cooled, and flash prices bottomed out at 5 cents a gigabyte. Bernstein Research estimated the flash industry generated operating losses of $19 billion that year, while Apple earned $14 billion in gross profit selling extra flash storage.
Those were tough times that “I hope we don’t ever see again,” said Nelson, the Kioxia sales executive.
