Apple shares tumbled about four percent on Tuesday after the company’s first results under new chief executive John Ternus showed that rising memory chip costs were denting the iPhone maker’s famously enviable margins, the latest sign of the AI boom’s toll on the wider technology industry. Sales of smartphones, personal computers and other electronics have already suffered this year from price hikes driven by soaring memory chip costs, as the AI industry’s data-center race absorbs available supply and leaves consumer device makers scrambling for allocation. That even Apple, long celebrated for its supply-chain prowess and its ability to wring favorable terms from suppliers, is feeling the squeeze shows virtually no firm is spared. The warning follows Intel’s bleak forecast last week on collapsing PC chip demand, and together the two signals suggest that the component crunch is now broad enough to affect the industry’s strongest players rather than merely its marginal ones.
Ternus was candid about the scale of the problem on his first earnings call as chief executive. He said that what the company is seeing with memory pricing right now is unprecedented, and he added that for the December quarter Apple expects even higher memory costs. Looking beyond that quarter, he said the company sees pricing for memory purchases continuing to increase. The language was measured but the implication was clear. Apple is not projecting a temporary spike that will fade in a few months. It is preparing for a sustained period of elevated component costs, and it is adjusting its guidance accordingly. Gross margin, the share of revenue Apple keeps after production costs, slipped to 47.9 percent in the September quarter from the June quarter, even with the boost from tariff refunds. The company expects its gross margin to shrink further to between 45 and 46 percent in the December quarter, as it also grapples with the costs of rolling out an AI-powered Siri that is central to its artificial intelligence strategy.
That combination is what unsettled investors. Apple has spent years cultivating a reputation for margin stability that rivals envy, and the December guidance marks a meaningful departure from that pattern. The memory cost pressure is external, a function of supply and demand in a market Apple does not control, but the AI spending is internal and discretionary. The company has chosen to absorb the expense of building a more capable Siri because it believes the investment is necessary to remain competitive, and that choice compounds the margin pressure at precisely the moment when component costs are already squeezing profitability. Investors who had grown accustomed to Apple’s ability to protect its margins through pricing power and supply-chain leverage are now confronting a company that is, at least temporarily, less able to do either. The share price reaction reflected that recalibration more than any concern about the underlying health of the business.
To cushion the blow, Apple has been drawing on memory chips bought earlier at lower prices and has moved to lock in supplies for the periods ahead. Its manufacturing purchase obligations, the orders placed with suppliers and contract manufacturers, increased by thirty-three billion dollars to 89.7 billion dollars as of September 26, according to a filing. That figure is revealing. It shows Apple using its balance sheet to insulate itself from the worst of the spot market, securing inventory well ahead of need and accepting the carrying cost in exchange for predictability. It is the kind of move that a company with Apple’s cash reserves can make and that smaller rivals cannot, and it offers some protection against further price increases. But it does not eliminate the problem. Locking in supply at today’s elevated prices merely fixes the cost at a high level rather than reducing it, and if memory prices eventually fall, Apple will be left holding inventory purchased at rates that looked reasonable in a tighter market.
The broader picture is one of an industry recalibrating around the demands of artificial intelligence. The data centers that power AI models consume enormous quantities of high-bandwidth memory, and the manufacturers who produce it have redirected capacity toward that more lucrative segment. Consumer devices, from phones to laptops to tablets, are competing for the remaining supply, and the resulting scarcity has driven prices upward across the board. Apple’s scale gives it advantages in that competition, but scale does not create memory where none exists. The company’s decision to raise prices on some MacBooks and iPads earlier this year was an early acknowledgment of that reality, and the latest guidance suggests further adjustments may be necessary. For consumers, the implication is that the cost of upgrading may remain elevated for some time, particularly for devices configured with generous amounts of memory.
What remains uncertain is how long the crunch will last and whether Apple’s AI investments will begin generating returns before the margin pressure eases. Ternus inherits a company that remains enormously profitable and fiercely loyal in its customer base, but he also inherits a cost environment that neither he nor his predecessor could have anticipated when the AI boom began. The measures Apple has taken, from forward purchasing to price adjustments, are sensible responses to a difficult situation. Whether they are sufficient depends on forces well beyond the company’s control. For now, the market has registered its concern, and the coming quarters will reveal whether that concern was warranted or merely a reaction to a temporary squeeze.
