Apple forecasts margin drop in holiday quarter as rising memory costs bite

Apple's fourth-quarter outlook took a hit as the cost of memory chips continued to rise, threatening the company's gross margin for the crucial holiday period. Executives noted that they had secured supplies to mitigate the impact, but investors reacted negatively during a conference call following the release of the results, which surpassed expectations.

Despite the margin concerns, demand for the iPhone 18 Pro lineup and higher prices bolstered the quarter. Apple forecasted a gross margin of 45% to 46% for the December quarter, down from 47.9% in the previous one, while services revenue growth was expected at 8% to 9%, falling short of analysts' 10.7% projection. New CEO John Ternus oversaw Apple's recent experiments with launching new iPhones intermittently and releasing various non-iPhone products.

The iPhone Duo, Apple's first foldable phone, faced supply issues after selling out quickly, prompting customer complaints about cracked screens. Ternus stated that a minor percentage of units had been returned for display problems, and Apple is currently unable to meet demand for the device. iPhone sales, which included the Pro models but excluded the Duo, totaled $57.58 billion, surpassing estimates.

However, services revenue growth lagged behind expectations, raising questions about Apple's ability to navigate the challenges posed by component price increases.