In brief
- Random Access Memory (RAM) prices have increased over 600% in the past year for consumer applications, driven by AI data centre demand, with a hardware component shortage expected to persist until at least next year.
- Manufacturers and suppliers may wish to review existing contracts to identify mechanisms that may provide flexibility, including price adjustment and hardship clauses and fee renegotiation mechanisms.
- Engaging proactively with commercial counterparties and diversifying supply chains may help mitigate exposure.
Supply chain challenges
The technology sector faces a pricing crisis that threatens to force difficult commercial decisions across the supply chain. For example, Random Access Memory (RAM) prices have increased by over 600% in the past year for consumer applications.1 Analysts predict a further increase in RAM prices in 2026.2 This is largely because of the rapid growth of AI-focused data centres, which is placing massive demand on RAM, graphics processing units, and solid-state storage drives, leaving limited capacity for consumer products.3 Pricing and supply challenges are likely to persist worldwide throughout 2026 and into 2027, with some warning the crisis could last two to three years.4
These cost increases are passing through the supply chain. There have been warnings that smartphone prices could rise by up to 30%, and specifications may be downgraded.5 Both Dell's Chief Operating Officer and Samsung's Co-CEO have described the situation as 'unprecedented'.6 Major players face an unpalatable choice between increasing prices and reducing product offerings.7
Smaller manufacturers face even greater challenges, with some potentially being priced out entirely, raising questions about whether they can fulfil existing contractual obligations.
What do your contracts say?
Businesses locked into supply agreements at pre-surge pricing should review their contracts to identify what flexibility they may be afforded by certain key mechanisms.
Price adjustment clauses
The most obvious place to look is at any price adjustment provisions. Well-drafted technology supply agreements should contain mechanisms for adjusting prices based on changes in underlying costs. Such clauses may allow prices to be increased upon notice in specified circumstances, such as an increase in costs beyond the supplier's reasonable control (including raw materials or energy costs).
Key questions include:
- Does the contract contain indexation clauses tied to component costs?
- Are there provisions for price reviews at specified intervals?
- Are price adjustment caps inadequate for current conditions?
- Does the contract permit the customer to terminate if it does not agree with a notified price increase?
Fee mechanisms
Beyond price adjustment clauses, the fee structure itself may offer some flexibility. Contracts using cost-plus pricing models, where fees are calculated as actual costs plus a margin, may provide more natural protection against component price surges. If a contract uses a fixed-price model, examine whether there are any provisions allowing for fee renegotiation based on material cost changes.
Force majeure provisions
Force majeure clauses suspend or terminate contractual obligations upon events beyond a party's control. However, under English law, these clauses are construed narrowly and are unlikely to provide relief for cost increases alone. The burden of proof falls on the party seeking to rely on them and merely making performance more expensive is usually not enough. These clauses typically offer suspension or delay rather than the ability to deliver at higher prices. Businesses seriously considering relying on these provisions should seek legal advice and maintain clear records of factual and economic evidence concerning the impact of price surges and component shortages.
Hardship clauses
Where performance has become significantly more onerous, but the parties wish to explore options before termination, a hardship clause may assist. Unlike force majeure provisions, hardship clauses address situations where performance remains possible but has become materially more burdensome. A well-drafted clause will require good-faith renegotiation where an event has made the contract materially less beneficial or more onerous for one party, typically specifying a timeframe for agreement, with provision for expert determination or arbitration if negotiations fail. Whether such a clause applies will depend on the specific drafting. Note that courts in England and Wales will not readily imply a duty of good faith or renegotiation if none is expressly stipulated.
Termination rights
As a last resort, suppliers severely affected by rising costs may look to termination provisions. Contracts may allow termination for material breach, impossibility or impracticability of performance, and/or convenience (subject to notice periods and potentially, termination payments). Although this may provide some relief, termination carries significant risks, including potential claims for damages, loss of long-term customer relationships, and reputational harm.
Even businesses that have obtained legal advice that they do have a right to terminate should keep in mind the importance of observing any requirements set out in the contract for serving notice; if the notice is invalid, then termination may not be effective.
Other practical steps
Before seeking to exercise a contractual right, hardware suppliers may find it more constructive to engage openly with customers about the effect of the current surge in hardware costs and limited component availability. Downstream entities in the supply chain may be willing to modify problematic contracts by way of written agreement if that is what is needed to maintain existing supply channels.
Other practical steps include:
- a thorough contract audit to identify potential price adjustment mechanisms and assess the scope of existing rights;
- an assessment of the viability of diversifying supply chains;
- strategic advance purchasing of critical components; and
- an evaluation of the financial impact of various cost scenarios.
Future-proofing contracts for hardware supply
Businesses supplying hardware should consider incorporating more robust protective mechanisms into their contracts. Key areas to focus on include:
- Price flexibility. Contracts could include a right for the supplier to pass on increases in component costs directly to the customer, with a straightforward process for the customer to check and verify that any claimed increase is genuine and accurate. The contract could alternatively include a market-based pricing trigger – for example, a percentage increase in market component prices – so that if costs rise beyond that level, the contract price automatically adjusts to reflect current market rates. Contracts could also include shorter pricing commitment periods (quarterly reviews rather than annual fixed pricing).
- Phased delivery and volume flexibility. To reduce the risk of unprofitable large-scale commitments, parties could consider phased delivery schedules with pricing adjusted between phases. This approach allows suppliers to reassess component costs at each phase rather than committing to fixed pricing across the entire delivery schedule. Parties may also consider incorporating minimum and maximum volume commitments with sliding scale pricing, allowing suppliers to adjust delivery volumes based on component availability whilst maintaining contractual certainty. Parties should be careful, however, to ensure that any flexible pricing arrangement is sufficiently clear and certain to form a binding contract; vague or open-ended pricing mechanisms risk rendering the contract unenforceable. As we explored in a recent article, the Court of Appeal has confirmed that, where both parties clearly intend to be bound by a contract, the courts should strive to uphold the contract by inserting a reasonable market price into the contract if necessary – but only where there is an objective basis for determining what that price should be.
- Extraordinary cost sharing. Cost-sharing provisions could be implemented so that extraordinary cost increases above a specified threshold (e.g. 20%) are split between supplier and customer. This could complement built-in price review mechanisms, protecting suppliers from extended exposure to volatile markets whilst giving customers predictability for short-term deliveries. Another option is to require periodic benchmarking exercises where both parties review prevailing market rates to identify when contract pricing has diverged significantly from market reality, triggering good-faith discussions about adjustments to price mechanisms.
- Hardship or material adverse change clauses. Contracts could include provisions requiring good-faith renegotiation where component costs increase beyond specified thresholds, or material adverse change clauses that permit price adjustments or termination where market conditions fundamentally alter the commercial basis of the agreement.
Conclusion
The surge in hardware component prices presents a serious commercial challenge for the technology sector. For many businesses, existing contracts will not adequately address these cost increases.
Proactive engagement with contractual provisions to build in greater flexibility, clearer risk allocation, and more robust mechanisms for addressing extraordinary market conditions, together with continual open dialogue with commercial counterparties, can do much to mitigate the impact of these challenges and preserve valuable commercial relationships.