Many smartphone users want the depth and quality of information they receive from their AI-powered assistants. Others want to use AI-based features like live translation, photography-related AI, website and news summaries, and more.
Demand for memory chips drives up the price of a limited supply
Ericsson uses application-specific integrated circuits (ASICs) for radios and baseband gear. Interestingly, networking gear uses the same chips behind smartphones and AI hardware, which are often 5nm. However, mobile networks demand the chips behind smartphones and AI workloads.
The first smartphone powered by a 2nm application processor was released this year
It’s been a while since we discussed why low process nodes are so important. As process node numbers decrease, the feature size for the chip becomes smaller, allowing for increased transistor density, leading to improved performance and energy efficiency.
Ericsson and Nokia are trying to get customers to renegotiate contracts
Says Narwinger, “Right now, many AI workloads are competing for the same scales that we’re interested in.” The hope is that as AI companies move to a 2nm process node in a few months, TSMC will be able to shorten lead times, allowing prices to drop by reducing manufacturing disruptions. But if none of this happens, Ericsson is said to be reaching out to its customers to renegotiate the contracts they have entered into at lower prices.
AI increases demand for semiconductors in general. We see very high demand for some of these components and this drives up prices for us.
Narwinger heads Ericsson’s Mobile Networks business group
If Ericsson can’t convince its customers to pay more for its networking equipment gear, the company’s profit margins will shrink. AI has already been blamed for declining headcount at Ericsson, which employed 105,500 people in 2022, down from 88,000 three months ago.
Nerwinger, Ericsson executive. | Erickson’s picture
As Ericsson renegotiates contracts with its customers to adjust for the high chip prices it has to pay, manufacturers may be forced to raise the prices of their handsets. For those of you who aren’t AI fans, there’s another reason to dislike artificial intelligence.
Nokia CEO Hotard says many customers understand why they have to pay a higher price
Ericsson’s chief competitor in networking equipment is Nokia, and its CEO, Justin Hotard, has seen lead times increase and its costs increase. Like Ericsson, Nokia is talking to its customers and trying to get them to agree to renegotiate their contracts and raise prices. Nokia’s Hotard says that when asking them to pay higher prices because AI has driven up memory chip costs, “many customers understand and accept that.”
BT (formerly British Telecom) CEO Allison Kirkby said AI data centers require a large amount of chips, the same silicon many smartphone manufacturers need to get. If you recall from Econ 101, high demand for a limited supply of a good leads to high prices, which explains the inflation of memory chips and the resulting high prices for consumer devices like smartphones.
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