Ai's silicon surge: chip prices skyrocket, threatening ericsson's profit margin
The relentless demand for artificial intelligence is triggering a dramatic shift in the semiconductor market, driving up prices for memory chips and squeezing the profits of tech giants like Ericsson.
A race for silicon: 3nm capacity and the waiting game
Ericsson, a key player in mobile network infrastructure, is facing a critical bottleneck as it struggles to secure access to cutting-edge 3nm chips from TSMC, the world’s leading foundry. The sheer volume of AI data centers – consuming a staggering 70% of global memory chip supply – is creating intense competition for these scarce resources.
Smartphone innovation vs. network reality
While smartphones are pushing the boundaries with 2nm application processors, like the Exynos 2600 powering the Samsung Galaxy S26 series, Ericsson’s mobile networks rely on chips a node behind – predominantly 5nm. This disparity highlights a crucial difference in demand: AI workloads are vying for the same limited silicon, forcing Ericsson to operate on a waiting list and pay a premium.
Negotiating a new reality
Per Narvinger, Ericsson’s head of mobile networks, admits the situation is challenging. “Right now, many of the AI workloads are competing for the same wafers that we also are interested in.” The company is reportedly exploring renegotiations with customers to offset the rising costs, a move mirrored by Nokia, whose CEO, Justin Hotard, acknowledges similar pressures.
Beyond the node count
It's not just about the process node; Ericsson and Nokia are actively engaging customers to justify price increases, driven by the fundamental economics of supply and demand. As AI firms shift towards 2nm production in the coming months, TSMC’s lead times are expected to ease, potentially alleviating bottlenecks and bringing prices down. However, Ericsson remains cautiously optimistic, preparing contingency plans to secure more favorable deals.
A margin at risk
The implications are significant. Should Ericsson fail to successfully renegotiate contracts, the company’s profit margins could be severely impacted, adding to the recent headcount reductions – a consequence of the AI-driven slowdown. The pressure is on, as the cost of the very technology fueling the AI revolution threatens to undermine Ericsson’s financial stability.