Bernstein analysts suggest Wall Street isn't properly modeling the extent to which gross margins, a profit metric, could take a hit due to the rising costs of smartphone components
Foldable iPhone screens are expensive to produce, Bernstein analysts say.
It may be a mixed bag for Apple if its new iPhones prove highly popular with consumers.
The company (AAPL) recently showed off new higher-priced iPhones in its Pro lineup as well as its first-ever foldable smartphone, the Duo. The problem for Apple is that even though these iPhones are expensive, the cost of making devices has become especially elevated.
New analysis released on Friday by Bernstein equity researchers shows the company's gross margin for iPhones, a measure of profitability, could compress this year as Apple faces sharply rising expenses associated with storage, memory and other components.
Gross margins track the portion of revenue that a company retains after paying for costs associated with making its products. The Bernstein analysts now expect iPhone gross margins of 40.4% for the December quarter, which is Apple's fiscal first quarter of 2027. This compares with a previous estimate of 42.5% for the period.
For context, the analysts said iPhone gross margins were 45% in the December quarter of last year.
Apple does not report an official figure for iPhone gross margin, but the company most recently reported overall gross margins of 50.1% for its June quarter.
In terms of overall gross margins, the Bernstein estimates are now below what's implied by Wall Street's consensus forecasts. The Bernstein team currently models a 46.2% gross margin for the company as a whole in the December quarter, while noting the consensus view is for a 46.7% margin.
The analysts considered the impact of international price increases for iPhones, without which they would expect iPhone gross margins to come out to 39.6% for the December quarter.
A primary source of pressure on margins for Apple is the rising cost of memory components. Together, dynamic random-access memory and NAND, which is a type of flash memory, account for approximately 90% of an estimated $168 rise in device costs for the new iPhone 18 Pro Max compared to the iPhone 17 Pro Max in the prior year, the analysts explained. That's when looking at the 256-gigabyte storage option for both models.
"The memory prices hikes are so huge that even Apple will see gross-margin pressure," Bernstein's Mark Newman told MarketWatch. That said, he noted that the company's premium brand enables it to command industry-leading gross margins.
The Bernstein analysts assume the iPhone 18 Pro Max will be Apple's best-selling individual model, accounting for 37% of iPhones sold in the December quarter.
But another hefty cost for Apple relates to the Duo's expensive display. The analysts estimate the foldable phone comes with display costs that are triple what they are for the iPhone 18 Pro Max. They peg the cost at $266 per device because of the complexities that come with making the display foldable.
The Duo's display structure requires a sandwich-like structure of carbon-based films layered with electrodes, high-strength glass, specialized adhesives and a titanium support plate, all of which make it substantially more expensive than pervious models.
Shares of Apple were up less than 1% on Friday, at last check.
See also: The murky AI milestone that has some of the industry's leading voices increasingly on edge
-Hannah Pedone
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