During the earnings call with investors following the release of its quarterly financial report, Apple detailed how rising memory chip costs and the rollout of the upgraded AI-powered Siri voice assistant are impacting the company's profitability. Chief Financial Officer Kevan Parekh and CEO John Ternus unanimously indicated that margin pressure will not ease in the near term, with management forecasting gross margins to drop to the 45–46% range in the first quarter of 2027.
Record Revenue Amid Shrinking Margins
For the past quarter, Apple posted a record revenue of $114.5 billion. However, this impressive figure masks a noticeable deterioration in margin metrics: total gross margin declined to 47.9% from 50.1% in the previous quarter, while product gross margin fell from 40.1% to 37.2%. Thus, total margin contracted by approximately 2.2 percentage points and product margin by 2.9. Parekh clarified that both figures include a positive one-percentage-point impact from the refund of previously paid tariffs. Excluding this effect from the calculations of the past two quarters, the sequential decline in both total and product margins would be around one percentage point — driven primarily by rising memory chip costs.
"Unprecedented" Memory Pricing Situation
Apple CEO John Ternus described current memory chip pricing dynamics as “unprecedented” and stated that the company expects further price increases for these components. Over the past several quarters, Apple has repeatedly warned investors about the pressure rising component costs place on margins. As partial compensation, management pointed to recent retail price hikes for Mac, iPad, and iPhone devices, as well as inventories of components purchased at lower prices. Meanwhile, the question of whether the company plans another price increase went unanswered during the conference call.
AI Siri: Cloud and Revenue Recognition Changes
Answering an attendee's question about how the rollout of AI Siri affects margins, Kevan Parekh highlighted two key factors. First is the increase in cloud infrastructure costs required to run the updated voice assistant. Second is a change in the revenue recognition model: Apple will defer a portion of the revenue from devices featuring AI Siri over their useful life rather than recognizing it all at once at the time of sale. Parekh emphasized that this approach aligns with the accounting practices the company already applies to built-in services like iCloud and classic Siri.
Services Hit Records, But Fail to Save Product Margins
Despite headwinds from the hardware side, Apple’s services segment delivered strong results, setting absolute records in video, cloud services, payment services, and advertising, alongside a third-quarter record in music. Nevertheless, these figures could not fully offset the decline in product margins, confirming the company's growing dependence on component costs and AI infrastructure expenses.
2027 Outlook: 45–46% Margins
The company provided a gross margin forecast for the first quarter of 2027 at 45–46%, signaling a further decline relative to the current 47.9% level. Parekh explained the expected deterioration as the combined effect of ongoing increases in memory chip costs and rising expenses tied to the rollout of AI Siri. For investors, this is a signal that even with high sales volumes and record revenue, per-unit profitability will compress until memory prices stabilize and the active phase of integrating AI features into the device lineup concludes.
