Apple's stock price falls due to rising memory costs raising profit margin concerns

Reuters, November 3 - Apple shares fell about 4% in pre-market trading on Tuesday after the tech giant warned that rising memory costs will squeeze gross margins, heightening investors' concerns about ongoing supply chain uncertainty and increasing artificial intelligence expenditures.

John Ternus released his first financial report as Apple's CEO on Monday, describing the current memory price environment as "unprecedented" and anticipating that costs will continue to rise after the quarter ending in December.

The iPhone manufacturer AAPL.O previously benefited from sourcing memory at lower prices, but expects this advantage to gradually weaken over time, leading to increased pricing pressure for its procurement.

Gross margin (the percentage of revenue retained after product manufacturing costs) was 47.9% in the September quarter, and even accounting for tariff rebates, this figure was still lower than in the June quarter.

Apple expects gross margins for the quarter ending in December to be between 45% and 46%, reflecting related expenditures from the widespread rollout of its AI-driven Siri functions.

AJ Bell's Head of Markets, Dan Coatsworth said, the CEO's comments suggest "Apple products will become more expensive, and at a time when consumers are feeling financial pressure due to rising living costs, this is not an ideal situation."

Nevertheless, despite Apple raising prices and adopting a phased launch strategy—introducing the high-end 18 Pro model only in the final days of its fiscal year 2026—its iPhone revenue for the September quarter still reached a record high.

According to data compiled by London Stock Exchange Group (LSEG), fourth-quarter iPhone sales, including the iPhone 18 Pro series (but excluding the Duo series), amounted to $57.58 billion, surpassing expectations of $56.54 billion.

William Kerwin, Senior Equity Analyst at Morningstar, said: "We believe the flagship iPhone is the core pillar of this ecosystem, granting Apple pricing power, switching costs, and network effects."

If losses continue, Apple’s $4.94 trillion market capitalization would evaporate by over $170 billion.

The stock's forward price-to-earnings ratio for the next 12 months is close to 35 times, compared with Alphabet’s ratio of 18.23 times GOOGL.O, and Microsoft MSFT.O at 23.43 times.

(To serve non-English speakers, Reuters automates translation of its reports into several other languages. As automated translation may contain errors or lack context, Reuters cannot guarantee the accuracy of automated translation texts and provides them for reader convenience only. Reuters bears no responsibility for any damage or loss arising from use of automated translation features.)