GoPro has cautioned that it might not endure. The AI memory shortage is harming companies that produce tangible products.

      GoPro has issued a warning regarding its financial stability, citing a substantial risk to its ability to continue operations. The action camera manufacturer reported a 26% drop in revenue during Q1 and anticipates violating several loan agreements. Consequently, shares plummeted by as much as 14%.

      The primary issue stems from memory prices, which have surged by 80% to 115%, significantly affecting GoPro's earnings forecast. In April, suppliers warned the company of a planned reduction in memory supply that would further diminish projected sales. The shift in DRAM resources affecting affordable smartphones is now posing a threat to GoPro.

      This situation arises from major manufacturers like Samsung, SK Hynix, and Micron reallocating wafer capacity from consumer DRAM to high-bandwidth memory (HBM) for AI data centers, where margins exceed 70%, compared to the 20-30% margins for consumer DRAM. As a result, memory producers have opted for higher-margin clients, leaving others to pay more or receive reduced supply.

      GoPro lacks the purchasing power to absorb these increased costs. Unlike Apple, which can negotiate favorable contracts and transfer expenses to consumers of its high-priced devices, GoPro operates as a company with less than $1 billion in revenue, with products priced between $300 and $500 that rely on commodity memory for high-resolution video storage. When memory prices double, the result is unprofitability for their products.

      After failing to meet obligations, the company has secured waivers from its lender but anticipates insufficient liquidity if default provisions are activated and outstanding debts are called in. GoPro has a $50 million second-lien facility from Farallon Capital Management and a revolving credit facility managed by Wells Fargo.

      The company has sought advisors to consider strategic options, including the possibility of a sale or merger, and is investigating defense and aerospace opportunities for "new markets and product categories." In April, it announced a plan to cut 23% of its global workforce.

      This shift towards defense mirrors Faraday Future’s move into robotics: a consumer electronics firm under financial strain aiming for a more profitable, government-funded market where competitive conditions differ. However, it remains uncertain if GoPro's expertise in rugged cameras will secure defense contracts.

      The only immediate relief in supply may come from China, where DRAM from ChangXin Memory Technologies has appeared in Corsair’s retail DDR5 kits. However, CXMT plans to convert 20% of its production capacity to HBM due to the attractive margins. The shortage of consumer memory appears to be systemic rather than cyclical.

      The ramifications of the memory crisis are evident across consumer electronics. For instance, the Asus ROG NUC 16 is priced $1,200 higher than last year's model partly due to increases in DDR5 costs. Dell raised laptop prices by 15-20% in December, while Apple has agreed to pay Samsung a 100% premium for LPDDR5X used in iPhones. These larger corporations can absorb such costs, but GoPro cannot.

      Founded in 2002 by Nicholas Woodman, GoPro went public in 2014 with a valuation of $3 billion, transforming the action camera market and establishing a brand linked to extreme sports and adventure. Its stock reached over $90 in 2014, yet it now trades below $1.

      The going-concern warning positions GoPro as a prominent victim of the AI-driven memory reallocation crisis, though it is unlikely to be the last. Any consumer electronics entity operating with slim margins, limited purchasing power, and reliant on commodity DRAM faces similar challenges. The AI boom has generated substantial profits for three memory producers and the hyperscalers they support, while GoPro finds itself adversely affected in this scenario.