Apple's John Ternus Faces Early Test as Memory Crisis Squeezes Margins in First Earnings Report

Apple's First Earnings Report Under John Ternus Reveals Margin Pressures

John Ternus delivered his debut earnings call as Apple CEO on Monday, and Wall Street's reception was decidedly cool1

1

. While the 51-year-old executive, who took the reins from Tim Cook on September 1, reported better-than-expected earnings and revenue including strong iPhone sales, the company's disappointing gross margin forecast sent shares down 3% in extended trading2

2

. CFO Kevan Parekh projected gross margins between 45% and 46% for the December quarter, trailing the 46.3% analyst estimate and marking what would be Apple's lowest margin since fiscal Q4 20231

1

. The culprit: soaring memory costs and expenses tied to ramping up Siri AI.

Unprecedented Memory Pricing Increases Squeeze Tech Giant

"What we're seeing with memory pricing right now is unprecedented," Ternus told analysts, adding that the company expects memory pricing increases to continue beyond the December quarter1

1

2

2

. This represents the third consecutive quarterly margin decline for Apple, dropping from 50.1% in June to 47.9% in September, with the latter boosted by 1 percentage point from tariff refunds1

1

. The memory chip shortages stem from insatiable AI demand, with Nvidia and hyperscalers buying up RAM supplies and paying premium prices for AI servers, leaving minimal inventory for smartphone and tablet manufacturers1

1

. Cook had previously described the situation as a "hundred-year flood" during his final months as CEO1

1

.

Supply Chain Constraints Force Strategic Response

Apple COO Sabih Khan, making his first appearance on an earnings call since Cook held the position in 2010, acknowledged the company is seeing "less flexibility in the supply chain than normal"1

1

. In response, Apple has drastically increased purchase obligations by $33 billion from June to September to secure supply, though Khan declined to confirm long-term agreements with memory makers1

1

. The company expects supply chain constraints on iPhones and Macs during the holiday quarter, with new orders for the foldable iPhone Duo not arriving until late January2

2

. Apple "reluctantly" raised iPhone prices by $100 in September and increased prices across Macs, iPads, and accessories1

1

.

Siri AI Strategy Faces Investor Skepticism

The revamped AI assistant Siri remains a question mark for investors who aren't convinced Apple has found the winning formula for the AI age2

2

. When pressed about the roadmap for Siri AI and the industry shift toward personalized agents like Meta's Muse assistant, Ternus offered limited details, noting Siri is "primarily request-based today" though built on an architecture allowing substantial capability expansion2

2

. He described agentic capabilities as "promising tools" while emphasizing user privacy and security2

2

. Reviews have been mixed, with analysts noting the assistant lags behind leading chatbots from OpenAI and Anthropic, as well as Meta's wave of personalized agents capable of autonomous shopping and banking tasks2

2

.

Services Segment Slowdown Adds to Challenges

The $4.9 trillion company is also contending with slowing growth in its Services segment without clear answers on how to reignite momentum2

2

. When questioned about finding new revenue streams, Ternus and executives pointed to the company's install base surpassing 2.5 billion devices as a foundation for future monetization2

2

. They noted iCloud tiers historically focused on storage will evolve, and there will be usage limits on AI features not running locally2

2

. Despite margin pressures, analysts see a potential silver lining: Apple's ability to absorb increased costs may help it capture market share from Windows PC and Android phone makers lacking such financial cushion1

1

. According to IDC data cited by Ternus, Apple gained global share for both the quarter and full fiscal year, selling more Macs than any previous fiscal year1

1

.