Apple shares fell about 4% in premarket trading on Tuesday after the company forecast lower gross margins for the December quarter, citing rising memory-chip costs and expenses tied to its AI-powered Siri. The tech giant reported record iPhone revenue of $57.58 billion in the September quarter, but executives warned that memory pricing is at unprecedented levels and expected to remain elevated beyond the current quarter.
New CEO’s first earnings report delivers mixed results
Apple’s fiscal fourth-quarter results, the first under CEO John Ternus, exceeded Wall Street expectations, with revenue of $114.48 billion and earnings per share of $2.10, both surpassing analyst estimates. The company’s gross margin for the September quarter was 47.9%, down from the June quarter’s 50.1% but boosted by 1 percentage point from tariff refunds. However, Apple forecast a gross margin of 45% to 46% for the December quarter, below the 46.3% average analyst estimate, due to higher memory costs and AI-related expenses.
Supply constraints and product launches shape outlook
Apple’s revenue was driven by strong demand for the iPhone 18 Pro models, though the company did not release a standard iPhone 18 in the quarter. The company also launched new products, including its first touchscreen laptops and smart-home hub, as part of a strategy to smooth its revenue cycle. However, supply constraints affected the iPhone Duo, Apple’s first foldable phone, which sold out quickly and faced reports of cracked screens. CEO Ternus acknowledged that the company is unable to meet current demand for the device, with no timeline for catching up.
Services growth slows, while China and iPad sales miss estimates
Apple’s Services revenue grew 8% to 9% in the quarter, below the 10.7% expected by analysts, signaling a potential slowdown in growth. Revenue from China, at $17.54 billion, also fell short of estimates, while iPad sales of $6.23 billion missed projections. Mac sales, however, topped estimates at $10.79 billion, marking the segment’s best year ever.
Market reaction reflects investor concerns
Apple’s stock declined about 4% during the earnings call after executives outlined the weaker outlook. The company’s market value dropped by over $170 billion from its $4.94 trillion valuation as losses held. Analysts noted that while Apple’s results were strong, the forecasted margin compression and rising costs raised concerns about future profitability.
CEO Ternus emphasizes long-term strategy
In his first earnings call as CEO, Ternus highlighted Apple’s innovation across product categories, including the iPhone Duo and new Mac models. He acknowledged supply-chain challenges but emphasized the company’s ability to adapt to changing market conditions. The company’s $24 billion in stock buybacks during the quarter and $86 billion over the past 12 months were noted as signs of financial strength.
Key takeaways for investors
- Apple’s record iPhone revenue offset concerns about rising costs.
- Gross margin is expected to decline due to higher memory and AI expenses.
- Supply constraints limit growth for the iPhone Duo and other products.
- Services revenue growth is slowing, which may impact future earnings.
- The company’s stock declined following the forecast, reflecting investor caution.