Apple Forecasts Margin Drop as Memory Chip Costs Rise
Channelnewsasia.com noted on Monday (Nov 2) that Apple cautioned about continuing increases in memory chip expenses that would squeeze gross margins through the vital holiday quarter, though management mentioned measures had been implemented to secure component inventories. Shares of the technology giant were little changed in after-hours trading after fiscal fourth-quarter results beat expectations, but initially fell 4 per cent during a conference call before paring losses to a 2 per cent decline. Early demand for the iPhone 18 Pro lineup and higher prices bolstered the quarter’s financial performance.
For the period concluding in December, the corporation anticipates gross margins between 45 per cent and 46 per cent, marking a decrease from the 47.9 per cent recorded in the fourth quarter. It forecast services revenue growth of 8 per cent to 9 per cent, which sits below analysts’ expectations of 10.7 per cent, according to channelnewsasia.com and RTÉ. These financial projections arrive as Apple operates under new leadership following the September transition to Chief Executive Officer John Ternus, who has overseen a shift in product release pacing.
Staggered Product Launches and iPhone Duo Supply Constraints
Moving away from a nearly two-decade tradition of launching most new iPhones each autumn, Apple spaced out its hardware releases this year. The company shipped iPhone Pro and Duo models during the fourth quarter while scheduling other models for next year. Alongside these phones, Apple released touchscreen laptops and its first smart-home hub. According to analysts cited by channelnewsasia.com, this steady drumbeat of releases aims to smooth out a yearly revenue cycle that historically peaked during the holiday season before petering out by late summer.
Compounding the manufacturing schedule, Apple has grappled with customer reports of cracked screens on the iPhone Duo, its first foldable phone. The device sold out within hours online and generated long lines at retail stores following its launch. In an interview with Reuters reported by channelnewsasia.com and RTÉ, Ternus stated that “a very small percentage” of iPhone Duo units had been returned for display issues and that Apple is replacing them. He confirmed that the company cannot meet overall demand and has no timeline for catching up. “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.” Fourth-quarter iPhone sales, which included iPhone 18 Pro models but excluded the Duo, reached $57.58 billion, topping analyst estimates of $56.54 billion based on LSEG data.
Memory Chip Price Spike Threatens Profit Margins
The staggered launch strategy coincides with headwinds from an artificial intelligence-driven memory-chip price spike that threatens to dampen the margin benefits Apple typically derives from storage upgrades. “The big question for Apple moving forward will be how well they can weather the significant component price increases that have slowed their PC and smartphone competitors,” said Bob O’Donnell, chief analyst at TECHnalysis Research, as reported by channelnewsasia.com and RTÉ. “The new iPhone Duo looks to be a big hit, but the company has to solve the screen glitches and ramp up its manufacturing output.”
To offset rising memory costs, Apple raised iPhone 17 prices by $100 alongside the iPhone 18 Pro launch and increased select MacBook prices. “We did see higher memory costs as compared to the June quarter, which was partially offset by the benefit of carrying inventory and lower costs on certain non-memory components,” Ternus said during the investor call. Chief Financial Officer Kevan Parekh noted that Apple expects memory costs to keep climbing into next year. While Chief Operating Officer Sabih Khan did not directly confirm a long-term supply agreement, he stated that Apple is working closely with suppliers and that its purchasing commitments increased by $33 billion during the quarter.
Fourth-Quarter Financial Breakdown
Fiscal fourth-quarter sales reached $114.48 billion, exceeding analyst estimates of $113.39 billion compiled by LSEG data. Profit hit $2.10 per share, topping estimates of $1.99 even when excluding 5 cents from tariff refunds. Gross margins for the fourth quarter landed at 47.9 per cent, outperforming the 47.5 per cent analyst consensus. Mac sales contributed $10.79 billion, beating estimates of $9.61 billion, while services revenue reached $31.57 billion, matching estimates of $31.58 billion. Meanwhile, iPad and wearables sales came in at $6.23 billion and $8.30 billion respectively, falling below analyst expectations, and Chinese sales totaled $17.54 billion against estimates of $18.58 billion from Visible Alpha.
Higher iCloud Subscription Prices Offset AI Computing Expenses
Apple executives pointed to Siri AI, which runs partially in Google’s cloud infrastructure, as another factor impacting margins. To offset these computing expenses, the company plans to charge higher prices for iCloud+ subscriptions, though specific pricing has not yet been detailed. “There are going to be some usage limits on features that rely on server-side models, which include Siri AI and intelligent photo editing,” Ternus explained during the call.
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