Morgan Stanley Research: Memory prices soar, both Android and PC face impact, but Apple will not raise prices this year

Morgan Stanley believes that a "cost storm" in the hardware industry triggered by soaring memory prices is sweeping the globe.

According to the news from the trading desk, on January 6, the research team led by Erik W Woodring at Morgan Stanley published a report after concluding their trip to Taiwan, pointing out that memory prices are surging at an unexpected pace in 2026. It is expected that DRAM contract prices will increase by 40-70% quarter-on-quarter in the first quarter, and NAND prices will rise by 30-35%, far exceeding previous expectations.

This cost pressure will have a profound impact on the entire hardware industry. Most OEM manufacturers are expected to significantly raise prices in the first half of 2026 to cope with cost pressures, which may lead to a decline in the annual shipment volume of Android phones and Windows PCs.

However, Apple has decided to maintain its product pricing due to securing favorable memory prices in advance, which is expected to lead to an increase in market share for iPhone and Mac in 2026.

The shortage of hard disk supplies is worsening, with the supply-demand gap expected to widen to 200EB over the next 12 months. Server manufacturers such as Dell and HP may soon initiate large-scale layoffs to protect operating profit margins.

Soaring Memory Prices Reshape Industry Landscape

According to the latest forecast from TrendForce, DRAM contract prices are expected to increase by 40-70% quarter-on-quarter in the first quarter of 2026, while the previous expectation was only a 15-23% increase. For NAND, contract prices are expected to rise by 30-35%, also far exceeding the previous expectation of 15-25%.

This cost pressure is forcing almost all hardware OEM manufacturers, except for Apple, to significantly raise prices in the first half of 2026.

The report indicates that the expectation of price increases has prompted customers to place orders in advance, which is expected to lead to strong performance in the fourth quarter of 2025 and the first quarter of 2026, but will subsequently result in weak demand in the second half of 2026.

A server OEM manufacturer expects that general server shipments will increase by 5% quarter-on-quarter in the first quarter of 2026, which is much better than the usual seasonal decline of 10-15%.

The PC market is also expected to exhibit similar seasonal characteristics, with a strong first half and a weak second half.

Morgan Stanley believes that, for the whole year, the shipment volume of Android smartphones and Windows PCs is expected to decline in 2026. The demand for general servers from enterprise customers is expected to remain flat or decline year-on-year.

However, cloud service providers (CSPs), benefiting from strong AI server demand, are asking ODM manufacturers to achieve over 30% year-on-year growth in general server shipments in 2026. This is driving an overall expected year-on-year growth of about 10% in the general server market shipments 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.

Apple has established NAND inventory before the first quarter of 2026 through a partnership agreement with KIOXIA, securing relatively favorable prices. Although KIOXIA may renegotiate contract prices at the beginning of 2026, Apple has already gained the upper hand In terms of DRAM procurement, Apple is still negotiating with memory manufacturers regarding pricing for the first quarter of 2026. Due to Apple's early locking in of more favorable memory prices, memory manufacturers may significantly raise prices for Apple in the first quarter to catch up with market levels, with expected increases possibly exceeding 50%.

Crucially, Apple has decided to maintain stable product prices, which will help iPhone and Mac gain market share in 2026. Early supply chain data indicates that iPhone shipments in 2026 will remain flat or see slight growth, while Mac shipments are expected to increase year-on-year.

Additionally, Apple plans to launch a low-cost MacBook priced at $599 in the first half of 2026, featuring the A19 processor, which will further help Apple capture market share in the PC market.

Research reports indicate that the iPhone is performing strongly in the Chinese market, with sales in December 2025 expected to grow by 20-40% year-on-year. Based on strong demand for the iPhone 17, Apple increased wafer orders with TSMC at the end of October and in November 2025, but this is also due to the very tight supply of 3-nanometer wafers. These additional orders will be spread across multiple quarters, expected to be delivered in the March and June quarters.

In terms of product planning, Apple will change the release rhythm of the iPhone: the iPhone 18 Pro, Pro Max, and foldable iPhone will be launched in the fall of 2026, while the basic version of the iPhone 18, 18e, and Air 2 will be postponed to the spring of 2027. The target shipment volume for the first full year of the foldable iPhone is 15-20 million units, with a production target of 7-8 million units in the second half of 2026.

Hard Drive Supply Crisis Escalates: Shortage Expands to 200EB

The shortage of hard disk drives (HDD) is intensifying, with the supply gap now expanded to 200EB over the next 12 months, compared to the previous expectation of 100-150EB three months ago.

In the face of a severe HDD shortage, hyperscale cloud service providers are taking temporary measures, using enterprise-grade solid-state drives (eSSD) to partially meet storage demands.

However, the report notes that from a total cost of ownership (TCO) perspective, the efficiency of eSSD is far lower than that of HDD, so this is merely a stopgap measure and not a fundamental shift in data center architecture.

Although storage chip manufacturers have attempted to reduce the unit capacity cost ($/GB) of eSSD, aiming to replace HDD as early as 2028, the cost gap between the two remains significant.

As of the end of the fourth quarter of 2025, the cost per GB of NAND flash (the core of eSSD) is far above $0.10, while the average cost of HDD is only about $0.013, with the acquisition cost of eSSD potentially reaching up to 10 times that of HDD.

Therefore, introducing high-stacking layers (400+ layers) NAND to replace HDD with eSSD is no longer a focus for storage chip manufacturers.

It is noteworthy that HDD manufacturers are unwilling to expand total production capacity, but they are reallocating capacity from consumer/client applications (such as personal computers) to cloud/nearline storage demands to meet the growing demand for cloud storage. **

Seagate Technology (STX) is increasing the prices of consumer/client HDDs by 10% each quarter to align its profit levels with the more profitable nearline disk business.

OEM Manufacturers' Response Strategy: Layoffs and Downgrades

Morgan Stanley believes that the rising cost pressures will force OEM manufacturers such as Dell, HP, and HPE to make significant layoffs to protect operating profit margins.

Similar to the memory supercycle of 2017-2018, Dell plans to start layoffs as early as January 2026, focusing on non-AI teams, and will begin using AI to improve productivity to reduce the size of internal teams. Second-tier OEM manufacturers face greater challenges due to weaker balance sheets and limited bargaining power in the supply chain.

In terms of product strategy, PC OEM manufacturers are reducing bill of materials costs. Many 512GB storage configurations are being replaced with 256GB options. Manufacturers are keeping prices stable for entry-level models 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 supplies.

Memory manufacturers prioritize supply for large PC OEMs (Dell, HP, Lenovo, ASUS), making it more difficult for smaller manufacturers to obtain supplies and facing spot price risks.

For the AI server market, research reports indicate strong demand but thin profits.

xAI placed an order for 3,000 GB300 racks with Dell at the end of November, expected to be delivered in the first quarter (April quarter), along with 1,000 racks from CoreWeave, potentially allowing Dell to deliver up to 4,000 GB300 racks in the first quarter. More Neocloud players and sovereign AI projects continue to increase orders.

However, the gross margin for AI servers remains in the single digits, with ongoing price competition among major OEMs (Dell, HPE, Supermicro). HPE has deprioritized its AI server business due to low profit margins, while Supermicro remains competitive on pricing, putting recent pressure on Dell.