Despite Apple (AAPL.US) reporting record-high revenue for the latest quarter and providing a current-quarter outlook that surpassed market expectations, the company simultaneously issued a warning that rising component costs pose a risk of squeezing profit margins. During the analyst call on Thursday, Apple stated that revenue for the second quarter of fiscal 2026, ending in March, is expected to increase by 13% to 16% year-over-year. This growth rate exceeds Wall Street's previous forecast of 10%, demonstrating that Apple can maintain its growth momentum following a significant revenue surge in the first quarter driven by the iPhone.
However, the persistent shadow of rising memory chip prices has cast a pall over these impressive results. Apple's Chief Executive Officer, Tim Cook, noted that the impact of memory chip costs was minimal in the previous quarter, but its drag on gross margin is expected to become more apparent in the current quarter. Data shows that Apple's gross margin for the first quarter reached 48.2%, not only exceeding the company's own prior guidance but also surpassing analysts' expectations of 47.45%. Cook stated, "We continue to see significant price increases for memory chips in the market."
Furthermore, Apple revealed that supply chain issues have emerged for both the 3-nanometer processors used in iPhones and for the third-generation AirPods Pro, with the two supply problems being independent and unrelated. eMarketer analyst Jacob Bourne commented, "Consumers are already showing fatigue with inflation, and coupled with the ongoing shortage in memory chip supply, the gross margin of Apple's hardware business may face pressure in the coming quarters. Therefore, the continued growth of the high-margin services business is becoming increasingly critical."
These concerns have put pressure on Apple's stock price. Following the earnings release, Apple's stock experienced volatility in after-hours trading; it initially rose nearly 3.5%, but by the time of writing, the gains had narrowed to less than 1%. Year-to-date, Apple's stock has fallen by 5%, while the S&P 500 index has risen by 1.8% over the same period.
During the holiday shopping season, fueled by strong demand for the iPhone 17, growth in services, and a recovery in the Chinese market, Apple's revenue far exceeded Wall Street's expectations. As of December 27, quarterly sales surged 16% to $143.8 billion, beating the analyst average forecast of $138.4 billion and also exceeding Apple's own projected growth target of 10% to 12%. Cook said in the earnings statement, "iPhone demand is unprecedentedly strong, achieving the best quarterly performance ever, with sales reaching new records in all geographic segments."
These results confirm the success of Apple's latest iPhone series, which accounts for approximately half of the company's total revenue. High-end models have been particularly popular, further driving the company's sales and profit growth. However, the quarter also revealed some weak spots, including the Mac and wearables businesses. The company's AI development plan is also facing market concerns, as it undergoes a comprehensive adjustment this year following recent setbacks.
Additionally, Apple is grappling with tariff issues, stating that tariff factors had a negative impact of $1.4 billion on its performance during the holiday quarter. The Cupertino, California-based company has surpassed Samsung Electronics (SSNLF.US) in recent months to reclaim its position as the world's largest smartphone seller. But eMarketer's Bourne remains cautious, stating, "However, the uncertainty surrounding maintaining this dominant position may be greater than ever. The key lies in making the right decisions on pricing strategies and the development of next-generation devices, particularly wearables and the highly anticipated foldable iPhone."
Comments