Apple CEO John Ternus faced his first major challenge as the company's new leader during its latest earnings report. While Apple reported better-than-expected earnings and revenue, including strong performance in its core iPhone unit, the forecast for the company's gross margin raised concerns. CFO Kevan Parekh announced that Apple's gross margin for the December quarter would be between 45% and 46%, below the 46.3% average analyst estimate. Parekh attributed this to higher memory costs and expenses related to the ramp-up of Siri AI.
Apple shares dropped about 3% in extended trading, following a nearly 2% decline during regular market hours. The company is grappling with a global memory shortage, which has led to soaring costs for memory components. This marks the third straight quarter of declining gross margins for Apple, with the current forecast potentially being the lowest since the fiscal fourth quarter of 2023. Ternus described the memory pricing situation as 'unprecedented,' noting that costs continue to rise beyond the December quarter.
The memory crisis is affecting the entire tech industry, with AI server giants like Nvidia and hyperscalers buying up available RAM, leaving limited supply for smartphone and tablet manufacturers. Despite its size, Apple expects supply constraints on iPhones and Macs during the holiday quarter. The company has increased its purchase obligations by $33 billion from the June quarter to the September period to secure supply, though it declined to comment on long-term agreements with memory makers.
Analysts see a potential upside for Apple, as the company's strong financial position allows it to absorb some of the increased costs, potentially gaining market share from competitors. Ternus cited data from IDC, indicating that Apple gained global market share in the quarter and sold more Macs in a fiscal year than ever before.