Apple's shares declined 2.8% in after-hours trading on Monday, even as the company reported record quarterly sales, because management cautioned that rising memory-chip costs would compress profit margins during the crucial holiday season.
The stock dropped to $328.85 after closing the regular session down 1.83% at $338.32. For the fiscal fourth quarter, Apple posted revenue of $114.48 billion, a 12% increase year-over-year, and diluted earnings per share of $2.10, surpassing analyst expectations of $1.99. Net income reached $30.71 billion, and gross margin came in at 47.9%, above forecasts.
However, the company projected December-quarter gross margins between 45% and 46%, a notable decline from the September level. This guidance shifted investor focus from robust iPhone demand to the company's ability to protect profitability amid escalating component costs.
Record sales overshadowed by margin outlook
Apple's September-quarter revenue exceeded the $113.39 billion consensus estimate, and the earnings beat was solid. Yet the market's reaction centered on the future. Management expects December-quarter revenue growth of 7% to 10%, which could set another record, but also anticipates a smaller percentage of sales will remain after production and service-delivery costs.
Part of the apparent margin decline stems from an accounting benefit: September's gross margin was boosted by roughly one percentage point from tariff refunds. Even excluding that temporary gain, management expects profitability to weaken in the coming months.
“The big question for Apple moving forward will be how well they can weather the significant component price increases,” said Bob O'Donnell, analyst at TECHnalysis Research, in a Reuters report. He also noted production and display issues affecting the new foldable iPhone Duo, which launched after September and contributed nothing to the reported quarter.
The concern is that full order books may not guarantee full margins if Apple must pay considerably more to build each device.
AI-driven memory costs pressure Apple
The artificial intelligence boom has intensified demand for memory in data centers, tightening supplies of components also used in phones and computers. This has benefited chipmakers but raised costs for electronics manufacturers like Apple.
CEO John Ternus called the current memory-price increases unprecedented during Monday's earnings call, and he expects them to worsen through December and beyond. Apple has responded by raising prices on some iPhone, Mac, and iPad models, negotiating savings elsewhere, and carrying inventories purchased at lower prices.
Manufacturing purchase commitments rose by $33 billion between June and September as Apple worked to secure supplies, though that amount is not cash already spent nor exclusively earmarked for memory.
Citi analyst Atif Malik had warned in September that Apple faced “incremental pressure on gross margin,” projecting a 140-basis-point hit in calendar 2026, a forecast issued before Monday's results.
The situation illustrates Apple's dilemma: customers may accept higher device prices, but every increase risks weakening demand. Its Siri AI rollout will also add cloud costs, tightening the balance between sales growth and profitability.
Can iPhone sales and services cushion the squeeze?
iPhone revenue climbed 17% to $57.58 billion in September, while Mac sales reached $10.79 billion. Services generated a record $31.57 billion, providing a valuable stream of recurring revenue.
Still, management expects Services growth to slow to 8% to 9% in December, below Wall Street's roughly 10.7% estimate. Greater China sales rose 21% but missed forecasts, and constrained iPhone Duo production could delay further revenue.
Gene Munster of Deepwater Asset Management argued on CNBC's Fast Money on Monday that AI-ready Macs could drive a multiyear upgrade cycle. He expects Apple to stabilize margins through pricing, but cautioned that “the demand side is the harder piece.”
That argument depends on consumers continuing to upgrade despite higher prices. Premium models, recurring services, and efficient procurement could protect profits, but weaker sales or further chip inflation would leave Apple less room to maneuver.
This article is for informational purposes only and does not constitute financial advice.
