Apple's first earnings report under CEO John Ternus beat estimates, but its December-quarter gross margin forecast fell short of analyst expectations. The company blamed higher memory costs and some costs tied to the ramp of Siri AI, and its shares slid.
Apple guided to a gross margin of 45% to 46% for the December quarter, below the 46.3% average analyst estimate, according to LSEG. CFO Kevan Parekh delivered the figure just before Ternus opened the call to analysts' questions.
The forecast overshadowed a solid report. Apple reported better-than-expected earnings and revenue on Monday, including in its core iPhone unit, and projected current-period sales above estimates.
Shares fall as memory prices climb
Apple shares slid 3% in morning trading on Tuesday. A margin drop in the fiscal first quarter would be Apple's third straight decline.
Apple's gross margin was 50.1% in the June period and 47.9% in the September quarter, which got a boost of 1 percentage point from tariff refunds. At the midpoint of the new range, it would be the company's lowest since the fiscal fourth quarter of 2023.
Ternus said on the call: "What we're seeing with memory pricing right now is unprecedented." He added that Apple expects memory pricing to keep rising beyond the December quarter.
Supply limits and a possible share gain
Apple expects supply constraints on iPhones and Macs in the holiday quarter, primarily driven by memory. COO Sabih Khan said the company is seeing less flexibility in the supply chain than normal.
Apple's response has been to secure supply. Khan said its purchase obligations rose by $33 billion from the June quarter to the September period.
Some analysts see an upside. Because Apple can absorb part of the higher costs, some experts predict it will take market share from makers of Windows PCs and Android phones. Ternus said that, according to IDC, Apple gained share globally for the quarter and for the full fiscal year.
Source: CNBC
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