Apple shares fall as rising memory costs pressure margins in Ternus’ first earnings report

Apple shares fell 4% in premarket trading Tuesday after the company forecast a lower-than-expected gross margin for the December quarter, highlighting the pressure of rising memory costs in John Ternus’ first earnings report as CEO.

Apple reported better-than-expected revenue and earnings on Monday, including from its iPhone business, and projected current-quarter sales above analysts’ estimates. But Chief Financial Officer Kevan Parekh said the company expects gross margin of 45% to 46% for the quarter, below the 46.3% analyst average tracked by LSEG.

Parekh attributed the outlook mainly to higher memory costs, along with expenses tied to the ramp-up of Siri AI. On the earnings call, Ternus said memory pricing was “unprecedented” and that Apple was paying more than it had earlier in the year. He added that prices for future memory purchases were expected to keep increasing.

The forecast would mark a third consecutive quarterly decline in Apple’s gross margin. It reported 50.1% in the June quarter and 47.9% in the September quarter, a figure boosted by one percentage point from tariff refunds. The midpoint of the new forecast would be the company’s lowest gross margin since the fiscal fourth quarter of 2023.

Apple also expects memory-related supply constraints for iPhones and Macs during the holiday quarter. Chief Operating Officer Sabih Khan said the supply chain had less flexibility than usual. Apple increased its purchase obligations by $33 billion between the June and September quarters to secure supply, though Khan did not say whether the company had entered long-term agreements with memory makers.

The shortage is affecting smartphone and computer manufacturers as demand from AI server companies and cloud providers increases competition for memory. Apple has raised prices on Macs, iPads and accessories, and increased iPhone prices by $100 in September. Ternus said the iPhone price increase was made reluctantly.

Despite the cost pressure, Apple’s margins remain above levels seen earlier in Tim Cook’s tenure, when they typically ranged from 38% to 39%. The company’s services business helped lift gross margin to 40% in 2021 and higher in subsequent years.

Ternus pointed to signs that Apple may be gaining ground as competitors face similar cost pressures. Citing IDC figures, he said Apple gained global share during the quarter and fiscal year, and sold more Macs in the fiscal year than ever before.

Sources: CNBC Markets.