Apple may face more intense pressure on profitability than the market is pricing in, according to brokerage Lynx Equity Strategy#LYNX . It sees "more downside" for stocks even after a drop of about 10% so far this year.
The company stated that its channel checks indicate rising memory costs, as Apple now faces an "unpleasant prospect of a sudden increase in NAND flash memory prices" after talks with longtime supplier Kioxia failed.
Lynx reported that "bad blood" has developed after Kioxia's low pricing led to a long-term agreement with Apple causing a "margin squeeze" for the supplier. As a result, "Kioxia may be shipping to Apple less than Apple's expected demand," forcing the company to look elsewhere for supply.
This shift could be costly. Lynx analysts stated that Apple "was forced to turn to Samsung to fill the supply shortage," and without long-term contracts, Samsung "is free to offer the current market price," potentially at much higher levels.
A Taiwanese nightly report cited by Lynx indicates that Samsung "may have raised NAND prices by up to 100%", with the possibility that Apple is among the affected customers.
In addition to higher costs, Lynx also pointed out technical concerns. Apple's flash controller is "optimized for Kioxia's NAND process", and "will not perform well with Samsung's NAND process", increasing the risks of performance issues and potential product returns.
Lynx stated: "The market is underestimating the impact", warning that both margins and stocks may remain under pressure in the coming period.
