Apple executives said memory prices will continue to rise into the next year.
- Apple forecast a gross margin of 45% to 46% in the December quarter, down from 47.9% in the fourth quarter.
- Apple’s Q4 sales and the forecast for Q1 were above expectations.
- Retail sentiment for AAPL shifted to ‘extremely bearish’ from ‘bearish’ on Tuesday.
Apple, Inc. (AAPL) shares tumbled 2.7% in overnight trading ahead of Tuesday, after the company said that its widely watched gross profit margin will continue to fall due to surging memory chip prices.
The forecast took the focus off an otherwise upbeat fiscal fourth-quarter report, with total and iPhone sales beating analyst expectations.
Apple executives said memory prices will continue to rise, speaking at length about the issue that prompted it to raise prices for several of its devices earlier this year. The company forecast a gross margin of 45% to 46% in the December quarter, down from 47.9% in the fourth quarter.
“As we said earlier in the September quarter, we did see higher memory costs as compared to the June quarter, which were partly offset by the benefit of carry-in inventory and lower costs on certain non-memory components. Now for the December quarter, we expect even higher memory costs, CEO John Ternus said on the analyst call on Monday.
CFO Kevan Parekh said, taking into account the tariff refunds in both the June and September quarters, “both company and product gross margin would be down about 1 point sequentially, primarily driven by higher memory costs.”
Analysts’ Reaction To Apple’s Report
Apple said they expect memory prices to continue rising into next year. Notably, memory stocks inched higher after those comments, with Micron (MU) and SanDisk (SNDK) rising 0.8% and 1%, respectively, in overnight trading.
Some analysts believe that the market is overplaying the negative elements in Apple’s report, with Deepwater Asset Management’s Gene Muster reminding that the sales forecast was upbeat.
“Investors are missing the bigger point: $AAPL’s December revenue guidance was better than the Street expected. That’s more important than slightly softer margin guidance,” he said in an X post.
CNBC’s Jim Cramer said that expectations from tech companies are pretty high, referring to stocks with news on Monday. “The negativity when it comes to Marvell, Apple, Palantir is pretty thick… No matter what they say, it isn’t enough,” he said.
Apple On AI Agents
When asked about Apple’s strategy around AI agents, an increasingly growing space with big moves from OpenAI and Meta Platforms recently, Ternus remained tight-lipped.
“Siri right now is primarily request-based,” he said. “And as we talked about before, it is built on a modern orchestrator-driven architecture. So we see opportunity to expand its capabilities over time.”
In response, Munster wrote that “it’s clear they don’t want to talk about personalized agents. They’re the biggest risk to the Apple ecosystem.”
Munster said about 20 million people worldwide use personalized agents such as Muse, Grok Bot, Dot, and in a few years that figure will be a billion.
Retail View On AAPL
On Stocktwits, the retail sentiment for AAPL shifted to ‘extremely bearish’ from ‘bearish’ on Tuesday.
“$AAPL Missed Services, Ipad and China revenue..Should have been 12 to 15% down. If it was some small cap growth company, they would have dumped 30% without mercy..This should go below 320 tomorrow at open and slowly bleed to 300,” a trader commented.
A few others forecast a recovery in Tuesday’s trading, with one suggesting AAPL could mirror Amazon’s move, which bounced back after initially falling after its results release.
AAPL stock, which hit a record high last Thursday, is up 25% year-to-date.
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