Apple expects its gross margin to fall to between 45 and 46 per cent in the December quarter, down from 47.9 per cent in the September quarter, and says higher memory costs are the main reason. CFO Kevan Parekh gave the outlook on Apple’s earnings call on 2 November, alongside record September-quarter revenue of $114.5 billion.
Parekh said most of the sequential decline at the midpoint of the range comes from higher memory costs. The guidance also includes costs linked to rolling out Siri AI to more customers.
Memory pricing is ‘unprecedented’
CEO John Ternus said: “What we’re seeing with memory pricing right now is unprecedented.” Memory costs were higher in the September quarter than in June, he said, but Apple offset part of that with older, cheaper memory already in inventory and lower prices on some other components. Excluding the tariff refunds from both quarters, company and product margins would each have fallen by about one point, driven by memory, according to Parekh.
For December, Apple expects memory costs to rise further. Price increases on the Mac and iPad at the end of June and on the iPhone in September give some offset, and Apple still expects some benefit from lower-cost inventory. Beyond December, Ternus said Apple sees memory purchase prices continuing to increase, and that the benefit from older inventory will shrink over time.
Ternus also said Apple’s manufacturing purchase obligations rose by $33 billion between June and September as it works to improve supply. Apple’s annual filing is due the next day.
Siri AI adds to the pressure
Parekh said the cloud costs of Siri AI are booked in services cost of sales. As with Maps, Siri and iCloud, Apple defers part of the revenue on devices that include these bundled services and recognises it over the life of the device. From the December quarter, those hardware deferrals will include Siri AI. Both effects weigh on gross margin, he said.
What about more price rises?
Asked about pricing, Parekh said Apple had “reluctantly” changed prices on a number of products, starting with the iPad and Mac around June and then the iPhone in September. Apple weighs short- and long-term effects, he said, and he believes it is balancing this well. He gave no commitment on further increases.
Memory has been a known pressure for some time; SK Hynix has warned of rises through 2030. For the other half of the call, see our report on Ternus’s first earnings call as CEO.