Apple has issued a warning that rising memory chip costs will pressure gross margins during the critical holiday quarter, forecasting a decline to between 45% and 46%. This projection represents a drop from the 47.9% margin achieved in the fiscal fourth quarter, which ended in September. Despite the weaker outlook for profitability, Apple's shares initially fell 4% during a conference call before recovering to a 2% decline, following a quarterly results report that exceeded analyst expectations.
The company reported fiscal fourth-quarter sales of $114.48 billion, surpassing estimates of $113.39 billion, with earnings per share reaching $2.10 against an expected $1.99. This performance was bolstered by early demand for the iPhone 18 Pro lineup and strategic price increases on other devices. However, Apple noted that memory costs have risen compared to the June quarter, a trend Chief Financial Officer Kevan Parekh expects to continue into next year due to an AI-driven spike in chip prices.
To mitigate these rising component costs, Apple raised prices by $100 on iPhone 17 models and increased prices for certain MacBooks. CEO John Ternus stated that these price adjustments provided a partial offset to the higher memory expenses, alongside benefits from inventory management and lower costs on non-memory components. Chief Operating Officer Sabih Khan indicated that while no long-term supply agreement was directly confirmed, purchasing commitments with memory suppliers increased by $33 billion during the quarter.
The holiday quarter forecast also includes services revenue growth of 8% to 9%, which falls short of analyst expectations of 10.7%. Apple attributed some margin pressure to the costs associated with Siri AI, which partially runs on Google's cloud infrastructure. Ternus mentioned that usage limits may be applied to server-side features like Siri AI and intelligent photo editing, and the company plans to increase iCloud+ subscription fees to offset these expenses.
Under the leadership of new CEO John Ternus, who took office in September, Apple is experimenting with a staggered product launch strategy. After nearly two decades of releasing most iPhones in autumn, the company spaced out this year's launches, shipping iPhone Pro and Duo models now while reserving other models for next year. This approach aims to smooth out the traditional revenue cycle that historically peaks during the holidays and declines by late summer.
A significant focus remains on the iPhone Duo, Apple's first foldable phone, which sold out within hours of its online release. However, the device has faced supply constraints and customer reports of cracked screens. Ternus acknowledged that a very small percentage of units have been returned for display issues and are being replaced, but stated that the company cannot currently predict when supply will meet demand. Fourth-quarter iPhone sales, which included the iPhone 18 Pro but excluded the Duo, totaled $57.58 billion.
Beyond smartphones, Apple released new non-iPhone products this quarter, including its first touchscreen laptops and a smart-home hub. Mac sales reached $10.79 billion, exceeding estimates, while services revenue came in at $31.57 billion, aligning with forecasts. Conversely, iPad and wearables sales of $6.23 billion and $8.30 billion respectively fell short of expectations, as did Chinese sales, which totaled $17.54 billion against an estimated $18.58 billion.
Sources: Investing.com News.