Rising component costs are creating fresh challenges for Apple as it prepares for the crucial holiday shopping season. The company expects higher memory chip prices to affect its profitability, although it says it has taken steps to secure supplies.
Apple forecast a gross margin of 45% to 46% for the quarter ending in December, compared with 47.9% in the previous quarter. It also expects services revenue to grow by 8% to 9%, below analysts’ estimate of 10.7%.
The outlook came after Apple reported fiscal fourth-quarter revenue of $114.48 billion, beating the $113.39 billion estimate. Earnings reached $2.10 per share, above the expected $1.99, even after excluding $0.05 linked to tariff refunds. Shares initially fell 4% during the earnings call before recovering some losses.
iPhone demand and supply challenges
Early demand for the iPhone 18 Pro lineup and higher prices supported quarterly results. iPhone revenue reached $57.58 billion, above the $56.54 billion estimate.
However, the iPhone Duo, Apple’s first foldable phone, remains in short supply. CEO John Ternus said “a very small percentage” of devices had been returned due to display issues and that Apple was replacing them.
“Duo is constrained as of today,” Ternus said. “The ramp is going well… but at this point, we’re not able to predict when supply and demand will be in balance.”
Apple is also changing its product launch schedule under Ternus, who took over in September. The company is spreading iPhone launches across different periods instead of releasing most models in autumn. It also introduced its first touchscreen laptops and smart-home hub this quarter to make revenue less dependent on holiday sales.
Memory costs and pricing strategy
Apple’s CFO Kevan Parekh expects memory costs to keep rising into next year. COO Sabih Khan said the company’s purchasing commitments increased by $33 billion during the quarter, while noting that Apple is working closely with suppliers.
Ternus said higher memory costs were partly offset by existing inventory and lower costs for other components. Apple also increased iPhone 17 prices by $100 and raised prices on some MacBook models.
The company is also factoring in AI-related expenses. Its Siri AI features partly rely on Google’s cloud, and Apple plans to increase iCloud+ subscription prices to help cover these costs. Ternus said “There are going to be some usage limits on features that rely on server-side models, which include Siri AI and intelligent photo editing.”
Other business results
Mac revenue reached $10.79 billion, above the $9.61 billion estimate. Services revenue was $31.57 billion, close to expectations of $31.58 billion. iPad and wearables revenue stood at $6.23 billion and $8.30 billion, respectively, both below estimates.
Greater China revenue was $17.54 billion, below the expected $18.58 billion, although the region’s sales recovered after 2 years of decline.
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