AI boom adds sticker shock to phones and cars

Semiconductor Manufacturing International

19/11/2025 12:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, Nov 19 (Reuters Breakingviews) - Artificial intelligence is disrupting everyday electronics, but not in a good way. The $140 billion smartphone maker Xiaomi 1810.HK on Tuesday warned a memory chip shortage will squeeze profitability. Blame suppliers' rush to provide high-end semiconductors to Nvidia NVDA.O, OpenAI and others building out data centres to train and deploy AI models. For relatively low-tech firms like electronics and auto manufacturers, hiking prices may be the only way to cope.

The world's top suppliers, South Korea's Samsung Electronics 005930.KS and SK Hynix 000660.KS, have been allocating manufacturing capacity to more lucrative high-bandwidth memory (HBM) chips that are a vital component in AI processors. That has led to a sudden squeeze in more conventional data-storage semiconductors used in traditional data centres, PCs, phones and cars—a market that was plagued by a glut as recently as 2023. Unlucky timing is also a factor: the AI arms race is coinciding with a replacement cycle, as many firms are starting to upgrade or replace servers from the previous data centre boom five years ago, in addition to the upcoming holiday shopping season.

As a result, contract prices for standard dynamic random-access memory (DRAM) for the three months to December are up sharply by roughly 30% compared to the previous quarter, reckon analysts at Bernstein; and, in October, industry leader Samsung raised prices for server chips by as much as 60% from the previous month, Reuters reported, citing sources. The shortage is starting to spread in what Nomura analysts describe as a "triple super cycle" across HBM, DRAM and NAND flash—the three main varieties of memory—that will continue through 2027.

That's great news for Samsung and SK Hynix, both of which are set to book record memory sales and operating profit, but not so much for their customers, who will have to pay through the nose. Arguably the world's biggest buyer of HBM, Nvidia, will be at the front of the queue together with trillion-dollar cloud computing titans like Microsoft MSFT.O and Amazon AMZN.O. Smaller outfits like Xiaomi, which also makes electric cars and other gadgets, may struggle to secure more commoditised, lower-margin chips. And even if they do, absorbing the higher costs will be painful: following Tuesday's warning, Citi analysts slashed Xiaomi's forecast gross profit for 2026 by 10%. Automakers face similar pressure, as Chinese contract chipmaker SMIC 0981.HK earlier this month flagged that uncertainty over supply has prompted customers, including car brands, to hold back first-quarter orders.

South Korean providers plan to expand capacity, but that will take time. Until then, consumers already grappling with inflation can brace for unwelcome AI sticker shock.

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CONTEXT NEWS

China's Xiaomi on November 18 warned that consumers were likely to see further hikes in smartphone prices next year due to soaring costs of memory chips while acknowledging such a measure would not fully offset the costs.

"I expect pressure to be much heavier next year than this year," Xiaomi President Lu Weibing told reporters on an earnings conference call, referring to the rising costs of memory chips. "Overall, consumers are likely to see a sizeable rise in product retail prices. Some of the pressure may have to be addressed through price hikes, but price increases alone won't be enough to digest it," he added.

Memory 'super cycle' could turbo-charge operating profits https://www.reuters.com/graphics/BRV-BRV/mopabjgydva/chart.png

(Editing by Hudson Lockett; Production by Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))