Apple Forecasts Margin Squeeze Amid Soaring Memory Chip Costs
Apple reported record September-quarter revenue of $114.5 billion, driven by strong iPhone and services growth. However, CEO John Ternus warned that unprecedented memory chip price increases will compress gross margins to 45-46% in the upcoming holiday quarter. This cost pressure highlights global supply chain challenges despite strong consumer demand across most regions.
Key points
- Apple, the tech giant led by CEO John Ternus, reported record September-quarter revenue of $114.5 billion, surpassing analyst expectations of $113.39 billion.
- The company forecast its gross margin will decline from 47.9% to between 45% and 46% in the holiday quarter due to rising memory chip costs.
- CEO John Ternus described current memory pricing as 'unprecedented,' noting that costs have increased significantly compared to the previous quarter.
- iPhone revenue rose 17% to a record $57.58 billion, while Mac and services revenues also saw double-digit growth, offsetting declines in iPad and wearables.
- Greater China revenue grew 21% to $17.54 billion, though it missed the $18.58 billion analyst estimate, with Japan being the only region where sales fell.
Record Revenue Amid Supply Chain Pressures
Apple Inc. has reported a record-breaking financial performance for its September quarter, posting total revenue of $114.5 billion. This figure represents a 12% increase from the previous year and exceeded the consensus analyst estimate of $113.39 billion, according to data from LSEG. The company’s earnings per share came in at $2.10, beating the forecast of $1.99. This result included a one-time benefit of 5 cents per share from tariff refunds. Net income for the quarter rose to $30.71 billion, up from $27.47 billion in the same period last year. The strong financial showing marks a significant milestone for the company, particularly as it navigates a complex global economic landscape.
CEO Warns of Unprecedented Component Costs
Despite the top-line growth, Apple faces significant headwinds in its supply chain, specifically regarding memory chips. During the earnings call, CEO John Ternus issued a warning about the cost of goods sold, stating that the company expects its gross margin to fall to between 45% and 46% in the upcoming holiday quarter. This is a notable decrease from the 47.9% gross margin reported in the September quarter. Ternus described the current state of memory pricing as "unprecedented," noting that costs have risen sharply compared to the June quarter. He explained that Apple had previously purchased stock at lower prices and secured cheaper non-memory components, which helped buffer the company in the prior period. However, these advantages are no longer sufficient to offset the current inflation in memory chip costs.
Strong Performance in Key Product Lines
The revenue growth was primarily driven by the iPhone and services segments. iPhone revenue surged 17% to reach a record $57.58 billion. This growth occurred despite the fact that the new iPhone 18 Pro models were only available for eight days during the quarter, with the iPhone Duo model launching on October 23, after the quarter had closed. The Mac division also performed well, with revenue increasing 24% to $10.79 billion. Services, a high-margin segment for Apple, grew 10% to an all-time high of $31.57 billion. These strong performances helped offset declines in other areas. iPad revenue fell 10% to $6.23 billion, and the wearables, home, and accessories category dropped 8% to $8.30 billion.
Regional Sales Variations
Geographically, Apple’s growth was widespread but not uniform. Revenue from Greater China rose 21% to $17.54 billion. However, this figure missed the analyst expectation of $18.58 billion, according to Visible Alpha data cited by Reuters. This suggests that while the Chinese market is growing, it may not be keeping pace with the broader global expansion. In contrast, Japan was the only major region where sales fell during the quarter. The company also reported setting an all-time revenue record in India, highlighting the growing importance of the South Asian market for Apple’s long-term strategy. This regional diversity underscores the company’s ability to find growth in emerging markets even as it faces challenges in established ones.
Looking Ahead
As Apple moves into the holiday quarter, the focus will shift to how the company manages the anticipated margin compression. The rise in memory chip prices is a broader industry issue, reflecting global supply chain dynamics and increased demand for high-performance computing components. Analysts will be watching closely to see if Apple can maintain its pricing power and consumer demand despite these higher costs. The company’s ability to navigate these supply chain challenges will be a key indicator of its operational resilience. With the holiday season typically being the strongest period for consumer electronics sales, Apple’s performance in the coming months will be critical in determining whether the margin pressure is a temporary blip or a more sustained trend.
Key takeaways
- Apple reported record September-quarter revenue of $114.5 billion, beating analyst estimates.
- Gross margins are expected to drop to 45-46% in the holiday quarter due to rising memory chip costs.
- CEO John Ternus described current memory pricing as unprecedented, citing significant cost increases.
- iPhone revenue hit a record $57.58 billion, driven by strong demand despite limited availability of new models.
- Services revenue reached an all-time high of $31.57 billion, supporting overall profitability.
- Greater China revenue grew 21% but missed analyst forecasts, while Japan saw a decline in sales.
Sources
The WireByte editorial team synthesises technology news from multiple primary sources, verifies the facts, and links every source. Articles are produced with AI assistance and reviewed under our editorial policy.
