Apple CEO Tim Cook is known for being a supply-chain maven. And he faces a tough test as the company navigates a supply environment that's been disrupted by the artificial-intelligence boom.
That was the hot topic of conversation on Apple's earnings call Thursday, and investors seemed pleased enough with what they heard. On the revenue front, Apple is showing better-than-expected growth despite being in short supply of iPhones and other products. And in terms of profits, the company is managing surging memory prices reasonably well for now, enough to support upbeat gross margins.
Shares of Apple $(AAPL)$ were up about 1% in Thursday's extended session following the earnings call.
Many analysts' questions concerned memory, especially as Apple forecast a 48% to 49% gross margin for the March quarter. At the midpoint, that's ahead of the 48.2% margin recorded for the December quarter, as well as the 47.3% consensus expectation for the March period.
Memory "had a minimal impact" on December-quarter margins but could have "a bit more of an impact" in the March quarter, Cook said on the call.
Apple's ability to command strong and expanding margins despite these disruptions partly reflects "favorable mix," CFO Kevan Parekh added. Basically, the company is selling more of its higher-margin, presumably higher-priced products and seeing double-digit growth within its Services business, which includes things like the App Store that are generally more profitable than hardware. Apple's Services segment achieved a record-breaking $30 billion of revenue in the December quarter, growing 14% year over year.
Parekh called out a "strong" iPhone product cycle "that does lend itself to a bit more favorable opportunity on the mix and leverage side."
Memory pricing is expected to rise beyond the March quarter, but Apple didn't share specifics on any long-term plans to mitigate the impact.
"We do continue to see market pricing for memory increasing significantly," Cook said. "As always, we'll look at a range of options to deal with that." Analysts on the call wondered if Apple would use its pricing power to offset memory costs, but Cook later declined to comment on Apple's pricing strategy.
It's unclear how higher memory costs could impact demand for iPhones going forward. Apple's robust gross margin and financial profile puts it on solid financial footing to weather supply-chain constraints, potentially allowing it to capture more market share while competitors are forced to raise prices or cut margins.
While Cook noted that the iPhone successfully gained market share in the December quarter, he didn't comment on whether those dynamics would hold up against rising component costs. "I wouldn't want to predict how the market reacts in the future," Cook cautioned. "It's very difficult to do that."