The most revealing number from Apple’s first earnings call under John Ternus was not the record $114.5 billion in revenue. It was 45 to 46 per cent. That is the gross margin Apple now expects for the December quarter, down from 47.9 per cent in the September quarter, and Chief Financial Officer Kevan Parekh said most of the drop at the midpoint comes from one thing: memory. Ternus called memory pricing “unprecedented”. Apple does not use that word lightly, and it does not usually say it out loud on a call.
My argument is simple. For twenty years Apple’s superpower was that it set the terms: it chose the price, the spec and the schedule, and its suppliers followed. The AI era is quietly reversing that. Apple’s next big product problem is no longer design or software. It is a bill, and Apple has started passing it on.
What Apple actually said
The facts are on the record. In its results release and on the call, which Six Colours has published in full, Apple guided to revenue growth of 7 to 10 per cent for the December quarter and put the slowdown down to constrained supply. Ternus said Apple expects memory purchase prices to keep rising beyond December and that the benefit from older, cheaper inventory will shrink. Apple’s manufacturing purchase obligations rose by $33 billion between June and September. Our report on the margin guidance has the detail.
Two other admissions sit in the same answer. Parekh said the cloud costs of Siri AI are booked in services cost of sales, and that from this quarter the revenue Apple defers on devices will include Siri AI too. And asked about pricing, he said Apple had “reluctantly” raised prices, on the iPad and Mac around June and on the iPhone in September, while declining to rule out more.
Read together, that is a company telling you three things at once: its components cost more, its AI costs more to run, and it has already started to charge more.
The squeeze is structural, not a blip
The easy reading is that this is a bad quarter in a good year. Apple’s annual report shows $478.8 billion in net sales and $132.2 billion in net income for the year to 26 September. But the reason for the memory squeeze is the same thing Apple is spending its money on. Nikkei Asia reported that SK Hynix, a key memory supplier, expects RAM and flash shortages to last until at least 2030 because of AI-driven demand. Apple is reportedly among 14 customers with priority orders, but on contracts that let prices move with the market (via 9to5Mac). Priority access is not the same as a fixed price.
That matters because on-device AI is a memory-hungry business. The more Apple wants a phone, a Mac or a home speaker to run a capable model locally, the more RAM it needs in every unit, and it is now competing for that RAM with the data-centre builders who are willing to pay almost anything. Apple has bought its way out of shortages before. It has never had to do it against customers whose budgets rival its own.
Meanwhile Apple is also spending on the other side of the ledger. Research and development reached a record $45.77 billion, up 32 per cent, or about 9.6 per cent of sales against 8.3 per cent a year earlier. Apple does not say how much of that is AI. It does not need to. Higher component costs, higher R&D and cloud costs that sit in cost of sales all point the same way.
The counter-argument
The fair objection is that Apple is fine. A gross margin of 45 to 46 per cent would be the envy of nearly every hardware company on earth. The September quarter included a benefit of about one percentage point from tariff refunds, and without it Apple says the margin would have slipped by about a point anyway, so the cushion was always going to thin. Apple’s own price rises have not dented demand: iPhone revenue hit a September-quarter record of $57.6 billion, and Apple says it cannot build enough iPhone Duo units to meet orders. A company that is supply-constrained, not demand-constrained, is not in trouble.
All true. But look at what “fine” depends on. It depends on customers continuing to absorb increases at the same moment Apple is asking them to accept usage limits on its server-side AI, with paid expanded access for heavy users, as Ternus repeated on the call. Apple can raise prices once or twice and call it reluctance. It cannot do it every year for five years without changing what an Apple product is.
What I expect Apple to do
This part is my opinion, not Apple’s guidance. I expect three things.
First, memory becomes the dividing line in the range. Apple has long used storage as the lever for upselling; I think RAM will join it, with less generosity in entry models and a bigger step up to the models that run the best AI features. Second, the metered-AI model we have already seen with Siri AI’s usage limits will spread, because it is the only way to turn a recurring cloud cost into recurring revenue. Third, Apple will lean harder on Services, which already brought in a record $31.6 billion in the September quarter, to carry the margin while hardware costs rise.
None of that is scandalous. All of it is a break with the Apple that sold you a faster chip and more storage for the same price and let the margin look after itself.
The test for Ternus
Ternus’s predecessors made Apple’s supply chain a strategic weapon. His task is to prove it still is when the scarce resource is something Apple cannot design its way around. The honest version of that story is a company that tells customers plainly what is getting more expensive and why, and which products it will not compromise to hide it. The dishonest version is quiet spec trimming and a price that creeps up with no explanation.
Apple chose a candid tone on this call. That is a good start. The test comes with the next round of launches, when Apple has to price products against memory that, by its own account, keeps getting dearer. If the answer is a thinner margin and unchanged prices, I am wrong and happy to say so. If it is another “reluctant” increase, the AI era will have done what Apple’s competitors never managed: made the company a price-taker.