Apple Inc. had a very, very merry Christmas. “Unprecedented” demand for the latest iPhone pushed revenue for its top device up 23% year-on-year to a staggering $85.27 billion in the holiday quarter. Revenue in China surged 38%. Gross margins stayed at a remarkable 48%.
Terrific! Same again this year? That Apple’s shares were mostly flat in after-hours trading following the announcement on Thursday indicates that investors believe this might be as good as it gets for a while.
It’s hard to see how Apple comes out unscathed from 12 more months of President Donald Trump’s tariff machinations, China’s unpredictability, the tricky introduction of its long-delayed AI features and a risky revamp of the iPhone offerings to include a foldable model.
Most concerning of all to Apple investors, based on their questions to the company on Thursday, is the impact of the global memory and supply chain crunch, to which Cupertino is not immune by any means.
First, the immediate side effect of the blowout quarter, Chief Executive Officer Tim Cook said, was that Apple was heading into this calendar year with “lean channel inventory.” “We’re in a supply chase mode to meet the very high levels of customer demand,” he said. “We are currently constrained and at this point, it’s difficult to predict when supply and demand will balance.”
He added: “The constraints that we have are driven by the availability of the advanced nodes that our SoCs are produced on.”
That comment on SoCs — system on a chip — relates to Apple’s own custom-designed silicon chips that go into its devices. There are too few machines in the world capable of making them.
Apple doesn’t design its own memory, instead turning to outside supplies like SK Hynix Inc., Micron Technology Inc. and Samsung Electronics Co. As other computer makers like Lenovo and Dell have spoken of their stockpiling efforts, Cook was coy on his outlook, saying only that the shortage had “minimal” impact on last quarter’s earnings and a “bit more” of an impact in this current quarter. Apple would look “at a range of options to deal with that,” he added.
Apple is understood to have in place long-term contracts that guarantee its memory supply, said IDC’s Francisco Jeronimo. However, he noted, it's not clear whether those deals will protect Apple from the drastic rise in prices over recent months, which is expected to last for the foreseeable future.
Asked by an analyst whether Apple would look to increase prices to compensate, Cook said he “wouldn’t want to speculate.” Working in the company’s favor will be its premium price point, within which component increases can be more easily absorbed, but that cushion isn’t limited. For the time being, at least, Apple is guiding that its 48% gross margin in the last quarter would be stable or grow slightly.
But hey, don’t let me rain on the parade of this record-breaking quarter. The short term (exceptionally) good news is that Apple’s sluggishness on AI has not yet harmed its core business of selling devices in the slightest. The pull of the iPhone, at home and abroad, has never been stronger. Plus, later this year, the fruits of Apple’s new partnership with Google should mean Siri is finally going to get smarter.
