Apple CEO John Tarnas gave a keynote speech at the Apple Experience LA event on October 28, 2026 in Los Angeles, California, introducing new models of Mac computers.
Frederick J. Brown | AFP | Getty Images
John Ternus’ first earnings report apple Things were going well until the CEO released his forecast for the company’s gross profit, one of the key metrics investors follow.
Apple on Monday reported better-than-expected earnings and sales, including for its core iPhone division, and also beat expectations for sales for the current fiscal year. But just before Tarnas began its earnings call answering questions from analysts, Chief Financial Officer Kevan Parekh came forward with the first real bad news.
Parekh said Apple’s gross profit margin for the December quarter, which spans the holiday season, will be 45% to 46%, lower than the average analyst estimate of 46.3% based on LSEG.
“This primarily includes the impact of higher memory costs and some costs related to improvements to Siri AI,” Parekh said.
Apple stock fell 3% in morning trading Tuesday.
apple stock chart
This is part of an ongoing trend for Apple to absorb some of the soaring costs caused by the global memory shortage. If profit margins fall in the first quarter of the fiscal year, it would be Apple’s third straight quarter of decline, following gross profit margins of 50.1% in June, when tariff rebates were boosted by 1 percentage point, and 47.9% in September.
At the midpoint of the forecast range, Apple’s gross profit margin will be at its lowest level since the fourth quarter of 2023.
“Memory pricing is unprecedented right now,” Ternus said on the conference call, adding that the company is paying more than it was earlier this year. “Looking beyond the December quarter, we expect memory purchase prices to continue to rise.”
Tarnas, who took over the reins from Tim Cook on September 1, is grappling with issues that his predecessor spent the last few months of his career grappling with. Cook told the Wall Street Journal in June that the memory situation was a “once-in-a-century flood.” Apple then raised prices across the board for Macs, iPads, and accessories.
Apple raised the price of iPhones by $100 in September, which Ternas said the company did “out of necessity.”
“Decreased supply chain flexibility”
Computer and smartphone manufacturers everywhere are suffering. on friday, intel The company’s weak outlook due to a softening PC market resulted in its worst market performance since the 1970s. It’s all due to the insatiable demand for artificial intelligence.
The major AI server companies are Nvidia And hyperscalers are buying up all the RAM they can find and are willing to pay a premium for it, leaving little supply for companies that make smartphones and tablets.
Despite its size and global influence, Apple said it expects iPhone and Mac supply to be limited primarily by memory in the holiday quarter.
During the conference call, Ternas had several senior aides answer component-related questions. Chief Operating Officer Sabi Khan was the first Apple COO to attend an earnings call since Cook in 2010, when Steve Jobs was CEO.
“As we’ve said before, supply chain flexibility is less than normal,” Khan told analysts on a conference call.
In response, Apple significantly increased its purchasing obligations to ensure supply, Khan said. Mr. Khan said those obligations increased by $33 billion from the June to September period, but declined to answer questions about whether Apple had entered into “long-term agreements” with memory makers.
“We are always working hard to improve supply,” Khan said.
Despite the recent decline in profit margins, Apple’s gross profit margins are still well above where they were at the beginning of the Cook administration, which is expected to fall between 38% and 39%. As Apple’s lucrative services business has grown, so have its gross margins, reaching 40% in 2021 and growing from there.
Analysts see a bright spot for Apple in the current market turmoil. Because Apple has a greater ability to absorb some of the cost increases, some experts predict that Apple will take market share from manufacturers of Windows PCs and Android phones that don’t have that cushion.
Ternas said the benefits are already occurring, citing data from third-party researchers.
“According to IDC, we gained global share in the quarter and throughout the fiscal year,” Ternus said. “And we’ve never sold more Macs in a fiscal year than we did this year, which is a truly amazing testament to these amazing products.”
WATCH: Apple beats expectations as rising component costs squeeze profit margins
