Apple says memory costs and Siri AI will weigh on profit margins

Following its latest earnings report, Apple held a quarterly conference call to discuss financial results, supply chain cost pressures, and upcoming profit margin expectations for the holiday season.

• September quarter revenue reached a record $114.5 billion.
• Company gross margin declined to 47.9% in Q4 2026.
• Product gross margin dropped to 37.2% from the previous quarter.
• Q1 2027 gross margin is forecasted to be between 45% and 46%.

Declining Margins and Component Costs

During the call, CFO Kevan Parekh reported that company-wide gross margin fell by 2.2 percentage points, while product gross margin dropped by 2.9 percentage points. Tariff refunds provided a minor favorable impact of about one percentage point, but without them, margins would have declined sequentially due to surging memory costs.

CEO John Ternus described the current memory pricing environment as unprecedented, noting that component costs are expected to keep rising past December. While recent price adjustments across Mac, iPad, and iPhone lineups and lower-cost existing inventory have helped buffer the blow, those advantages will gradually diminish.

Impact of Siri AI Rollout

Parekh also explained that the ongoing rollout of Siri AI will weigh on margins in two distinct ways. First, operating the AI features will increase cloud infrastructure expenses. Second, Apple will defer a portion of device revenue tied to bundled AI services and recognize it over the lifespan of the device.

This accounting practice mirrors how Apple handles bundled services like Maps, Siri, and iCloud. Nonetheless, the combined effect of higher memory prices and AI infrastructure costs led the company to issue a lower gross margin forecast of 45% to 46% for the upcoming quarter.

Market and Business Implications

For investors and the broader tech industry, Apple's cautious outlook highlights the rising cost of integrating advanced artificial intelligence into consumer hardware. While record-breaking revenue in services such as video, cloud, and advertising provides a strong buffer, hardware margins face genuine headwinds.

Whether Apple will implement further hardware price hikes to counter these pressures remains uncertain. For now, the company continues to rely on operational efficiencies and its robust services ecosystem to navigate the challenging cost environment.