Apple Services Unit Faces Near-Term Pressure as Memory Costs Weigh on Margin Guidance, Morgan Stanley Says

11:31 AM EST, 11/03/2026 (MT Newswires) -- Apple's (AAPL) services business faces near-term pressure amid factors including third-party licensing and foreign exchange headwinds, while rising memory costs drove a soft fiscal first-quarter margin outlook, Morgan Stanley said in a note Tuesday. The iPhone-maker expects December-quarter services revenue to grow between 8% and 9% due to "sequential headwinds" from third-party licensing and foreign exchange, Chief Financial Officer Kevan Parekh said during the earnings call held late Monday, according to a FactSet transcript. The guidance trailed the FactSet-polled consensus of 8.8% at the midpoint. Some headwinds in mobile gaming are expected continue into the December quarter, while Apple implemented changes to the App Store business model in certain countries, Parekh told analysts. A growing number of active devices and paid subscriptions offer long-term support, but near-term growth remains constrained by deceleration in App Store, traffic acquisition costs paid by Alphabet's (GOOG, GOOGL) Google and currency headwinds, Morgan Stanley said. Apple expects December-quarter gross margin between 45% and 46%. "This includes primarily the impact of higher memory costs, as well as some costs related to the ramp of Siri AI," Parekh said. Analysts expect gross income margin of 46.4%. Apple's shares declined 2.4% in Tuesday trading, but have gained 22% this year. Management expects memory inflation to persist beyond the December quarter, with benefits from lower-cost inventory expected to gradually fade. That signals "products gross margins will get worse before they get better," Morgan Stanley said. "Additionally, the Siri AI rollout introduces another margin headwind in the form of incremental cloud inference costs flowing through services (cost of goods sold), though this headwind seems relatively small compared to memory." The iPhone-maker reported stronger-than-expected fiscal fourth-quarter results late Monday driven by record September-quarter iPhone sales and an all-time-high services revenue. Last month, Alphabet's (GOOG, GOOGL) third-quarter results missed Wall Street's estimates despite AI-led cloud revenue growth as capital expenditure more than doubled annually. Separately, Microsoft (MSFT) reported better-than-expected first-quarter results. Dell (DELL) and HP (HPQ) are slated to report quarterly financials on Nov. 24. Price: 330.25, Change: -8.07, Percent Change: -2.39