Apple (NASDAQ:AAPL) reported stronger-than-expected fiscal fourth-quarter revenue and earnings, supported by demand for its iPhone 18 Pro models and higher product prices. However, the technology company warned that increasing memory-chip costs would reduce profitability during the important holiday shopping quarter, sending its shares lower in after-hours trading.
Apple forecast a gross margin of 45% to 46% for the quarter ending in December, down from 47.9% in the September quarter. The company also projected services revenue growth of 8% to 9%, below analysts’ expectations of 10.7%.
Shares initially showed little movement following the earnings release but dropped as much as 4% during management’s conference call before recovering to trade approximately 2% lower.
Apple reported fiscal fourth-quarter revenue of $114.48 billion, exceeding the $113.39 billion expected by analysts, according to LSEG data.
Earnings reached $2.10 per share, above the consensus estimate of $1.99, even excluding a five-cent benefit from tariff refunds.
The results reflected strong early demand for the iPhone 18 Pro lineup, alongside higher selling prices and contributions from other product categories.
Fourth-quarter gross margin reached 47.9%, surpassing analysts’ forecast of 47.5%.
Despite the stronger results, management’s guidance indicated that rising component costs would become a more significant challenge during the December quarter.
Higher memory prices have emerged as a major concern for Apple as demand from artificial intelligence infrastructure drives up the cost of semiconductor components.
The company expects memory expenses to continue increasing into next year, potentially limiting the profitability benefits it receives when customers purchase devices with higher storage capacities.
Apple’s December-quarter gross margin forecast of 45% to 46% represents a decline from the 47.9% achieved in the preceding quarter.
Chief Financial Officer Kevan Parekh told investors that memory costs were expected to remain under upward pressure.
Chief Operating Officer Sabih Khan did not directly confirm whether Apple had secured a long-term supply agreement when questioned by analysts. However, he said the company was working closely with memory suppliers and that purchasing commitments had increased by $33 billion during the quarter.
The company has also taken measures to secure component availability as it prepares for continued demand across its product portfolio.
Apple’s iPhone business generated revenue of $57.58 billion during the fiscal fourth quarter, exceeding the $56.54 billion anticipated by analysts.
The figure included sales of the iPhone 18 Pro models but excluded the recently introduced iPhone Duo.
Under Chief Executive Officer John Ternus, who assumed the role in September, Apple has adopted a revised product launch schedule.
Rather than introducing most new iPhone models during a single autumn launch period, the company is spreading releases across different parts of the year.
The iPhone Pro and Duo models are being introduced this year, while additional models are expected in 2027.
The strategy is intended to distribute product demand more evenly across the calendar, reducing Apple’s historical dependence on the holiday quarter.
Apple’s first foldable smartphone, the iPhone Duo, has attracted substantial customer interest following its launch.
The device sold out online within hours and generated queues at retail stores last month.
However, some customers have reported cracked screens, creating an additional challenge as Apple works to increase production.
In an interview with Reuters, Ternus said “a very small percentage” of iPhone Duo devices had been returned because of display problems, with Apple replacing affected units.
He also acknowledged that demand currently exceeds available supply.
“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.”
The company has not provided a timetable for resolving the supply shortage.
Bob O’Donnell, chief analyst at TECHnalysis Research, said Apple’s ability to manage component inflation would be important to its future performance.
“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,” O’Donnell said.
“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.”
Apple has increased prices across parts of its product portfolio to help manage rising manufacturing expenses.
Alongside the introduction of the iPhone 18 Pro, the company raised prices for the iPhone 17 range by $100 and increased prices on selected MacBook models.
Management indicated that these adjustments had helped offset some of the pressure from higher memory costs.
“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.
“These price increases provided some offset.”
The company also benefited from existing inventory and lower costs for certain components outside the memory category.
Nevertheless, continued increases in memory prices could make it more difficult to maintain current profitability levels.
Shares of memory manufacturer Micron rose more than 1% in after-hours trading on Monday. Semiconductor equipment companies KLA Corp and Applied Materials also recorded gains.
Artificial intelligence services represent another source of cost pressure for Apple.
The company said Siri AI, which operates partly through Google’s cloud infrastructure, is affecting margins as Apple expands its AI capabilities.
To help offset these expenses, Apple plans to increase prices for iCloud+ subscriptions, although specific pricing changes have not yet been announced.
Management also indicated that some AI-powered functions would be subject to usage restrictions because of the costs associated with cloud-based processing.
“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 said during the earnings call.
The comments highlight the financial challenges associated with expanding AI services that depend on external computing infrastructure.
Performance across Apple’s other businesses was mixed during the quarter.
Mac revenue reached $10.79 billion, comfortably exceeding analysts’ expectations of $9.61 billion.
The company introduced several products outside its smartphone lineup, including its first touchscreen laptops and first smart-home hub.
Services revenue totalled $31.57 billion, broadly matching the $31.58 billion consensus estimate.
However, iPad revenue of $6.23 billion and wearables revenue of $8.30 billion both fell short of expectations.
China also remained a weaker market, with regional sales reaching $17.54 billion compared with analysts’ forecast of $18.58 billion, according to Visible Alpha.
The regional shortfall contrasted with stronger results in the iPhone and Mac businesses.
Apple’s fiscal fourth-quarter results demonstrated continued demand for its premium smartphones and stronger-than-expected Mac sales.
However, the company’s holiday-quarter guidance highlighted growing pressure from memory-chip inflation and the cost of providing AI services.
Management is responding through product price increases, supply commitments and changes to its launch schedule, while working to address iPhone Duo production constraints and reported display problems.
Investors will be watching whether Apple can maintain strong iPhone demand, improve foldable-device availability and protect margins as component prices continue to rise.
The company’s ability to balance hardware profitability with expanding AI infrastructure expenses will remain an important consideration heading into 2027.
Apple stock price
| 26 min | |
| 28 min | |
| 31 min | |
| 35 min | |
| 43 min | |
| 46 min | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 1 hour | |
| 2 hours |
Join thousands of traders who make more informed decisions with our premium features. Real-time quotes, advanced visualizations, alerts, and much more.
Learn more about Finviz Elite