- Apple shares fell 2.81 per cent in after-hours trading, wiping nearly $140 billion from its market value
- Revenue reached $114.48 billion in the September quarter, beating Wall Street estimates
- CEO John Ternus warned that memory prices would continue rising beyond the December quarter, putting pressure on hardware margins
Apple lost nearly $140 billion in market value in after-hours trading on November 2, despite reporting stronger-than-expected quarterly earnings, as investors focused on the growing cost of memory chips and the pressure they could place on the technology giant's profitability.
Shares fell 2.81 per cent to $328.81 after CEO John Ternus described the current memory-pricing environment as "unprecedented" during his first earnings call since taking over the top job in September.
The reaction came after Apple reported fiscal fourth-quarter revenue of $114.48 billion for the three months ended September 26, beating the analyst estimate of $113.39 billion. Earnings per share reached $2.10, also ahead of the $1.99 consensus.
The results initially lifted the stock in after-hours trading, but sentiment changed as executives discussed the rising cost of memory and the outlook for the holiday quarter.
Apple's market capitalization stood at approximately $4.94 trillion at the end of the regular trading session, narrowly ahead of Nvidia at $4.88 trillion. The after-hours decline put that lead under pressure.
The company's September-quarter revenue increased 12 per cent from $102.46 billion a year earlier, while earnings per share rose from $1.85 to $2.10.
iPhone revenue reached $57.58 billion, exceeding analyst expectations of around $56.5 billion. Mac revenue also performed better than anticipated at $10.79 billion, compared with estimates of approximately $9.7 billion.
However, the strong hardware performance was not enough to offset concerns about rising production costs and the company's forward guidance.
Why are rising memory prices becoming a problem for Apple?
Memory chips are essential components in Apple's products, including iPhones, Macs and iPads. They include DRAM, which provides working memory, and NAND flash, which is used for data storage.
The rapid expansion of artificial intelligence infrastructure has increased demand for memory chips, particularly from data center operators. This has intensified competition for supplies and pushed up component prices across the technology industry.
Ternus told analysts that Apple had already experienced higher memory costs in the September quarter and expected them to increase further during the December quarter.
"Looking beyond the December quarter, we see the pricing for memory purchases continuing to increase," he said.
The warning suggests that the pressure may extend beyond the holiday shopping season, potentially affecting Apple's margins in the months ahead.
Apple reported a gross margin of 47.9 per cent for the September quarter. However, its forecast for the December quarter was between 45 per cent and 46 per cent, below the analyst estimate of 46.3 per cent.
Gross margin measures the proportion of revenue left after accounting for the direct costs of producing goods and services. A decline means Apple could retain less from each dollar of sales unless it offsets higher costs through pricing, efficiency or other measures.
Chief Financial Officer Kevan Parekh said higher memory costs would account for most of the expected sequential decline in gross margin, once the benefit of tariff refunds was excluded.
Apple has already raised prices on several products to offset some of the additional costs. Mac and iPad prices were adjusted in June, followed by iPhone prices in September.
Parekh acknowledged that the company had "reluctantly" made the decision to change pricing, adding that it was too early to assess the impact on customer demand.
The company also faces supply constraints. Chief Operating Officer Sabih Khan said memory availability was the main reason for expected Mac and iPad supply limitations during the December quarter, as demand had exceeded Apple's expectations.
To strengthen supplies, Apple's manufacturing purchase obligations increased by $33 billion between the June and September quarters.
Can Apple's strong sales offset the pressure on margins?
Apple's outlook for the December quarter suggests that demand remains resilient despite higher prices and supply challenges.
The company expects total revenue to grow between 7 per cent and 10 per cent year over year, potentially making it the strongest revenue quarter in its history.
However, its Services business, which includes the App Store, subscriptions and other digital offerings, is expected to grow between 8 per cent and 9 per cent. That is below the roughly 10.7 per cent growth analysts had anticipated.
Services is particularly important because it generally generates higher margins than hardware. Slower growth in this segment could make it harder for Apple to offset the rising cost of manufacturing its devices.
The company also reported that its inventory had reached $14.54 billion at the end of September, up 31.1 per cent from the June quarter and 154.3 per cent from a year earlier. The increase comes as Apple works to secure supplies amid rising component costs, although the reported inventory figures do not establish how much of the increase was specifically related to memory chips.
Despite the concerns, Apple ended the quarter with $137 billion in cash and marketable securities, against total debt of $80 billion. It also returned $28 billion to shareholders through dividends and share repurchases during the quarter.
The board declared a quarterly dividend of 27 cents per share, payable November 16 to shareholders of record on November 12.
For investors, the central question is whether Apple can continue delivering strong sales without allowing higher component costs to erode profitability.
The company's ability to secure memory supplies, manage pricing and sustain demand through the holiday season will be closely watched. If customers absorb higher device prices without significantly reducing purchases, Apple may be able to protect its margins. But if price increases begin to affect demand, the company could face pressure on both sales volumes and profitability.
The earnings report therefore presents a mixed picture: a business still generating record revenue, but facing a cost challenge that could become more difficult to manage as the AI infrastructure boom drives further competition for memory chips.
