Ai demand fuels chip price surge, threatening ericsson’s profitability
The relentless growth of artificial intelligence is triggering a semiconductor crisis, pushing memory chip prices to unprecedented levels and casting a shadow over the bottom lines of tech giants – and particularly, networking equipment maker Ericsson.
A race for silicon: 3nm capacity scarcity
The insatiable appetite for AI data centers – consuming a staggering 70% of the world’s memory chips – has created a bottleneck. Foundries like TSMC, the exclusive manufacturer of cutting-edge chips like those used by Apple and Nvidia, are operating at full capacity, leaving companies like Ericsson scrambling for access to the latest 3nm technology.
This scarcity translates directly into higher costs for Ericsson, which relies heavily on Application-Specific Integrated Circuits (ASICs) for its radio and baseband gear. They’re currently operating on a waiting list, paying a premium for these critical components.
Smartphone tech trails behind
Interestingly, Ericsson’s chips are a generation behind those found in the latest smartphones and AI hardware, primarily utilizing 5nm technology. While the Samsung Galaxy S26 series recently debuted with the groundbreaking 2nm Exynos 2600 application processor, Ericsson’s mobile infrastructure leverages slightly less advanced chips.
Per Narvinger, Ericsson’s head of mobile networks, acknowledged this disparity: “Mobile infrastructure uses chips that are slightly less cutting-edge than those used by smartphones and some AI workloads.”
Negotiating for survival
Facing potential margin erosion, Ericsson is reportedly proactively engaging with its customers, attempting to renegotiate contracts and secure more favorable pricing. The company’s survival hinges on convincing clients that the increased chip costs are unavoidable – a difficult proposition given the intense competition for limited wafer supplies.
But Ericsson isn’t waiting passively. With AI firms poised to move to the 2nm process node in the coming months, the company is exploring alternative strategies, including approaching customers to renegotiate deals and potentially offering lower prices if demand eases.
A ripple effect for consumers
This chip shortage isn't confined to Ericsson. It’s impacting the entire industry, driving up the price of smartphones and other consumer devices – a consequence of the fundamental economic principle of supply and demand. As Nokia CEO Hotard noted, “There are many customers that understand that and accept it.”
The situation underscores the profound influence of AI on the global semiconductor market, demanding a fundamental shift in production and pricing strategies. Ericsson’s actions will be closely watched as it battles to maintain profitability in this rapidly evolving landscape.”n