Apple expects its gross margin to fall as memory costs rise and tariff refunds end

Apple expects its gross margin to fall to between 45% and 46% in the current quarter, the one that takes in the holiday season, from 48.2% in the same quarter a year earlier. Gross margin is the share of each sales dollar left after the cost of building the devices and running the services. Over the past year it had been the line lifting Apple's profit. The new guide gives that gain back, and the company said the main cause is the rising price of memory chips, with some cost from rolling out its new Siri AI as well.

Last quarter's reported figure flattered the underlying trend. Apple reported gross margin of 47.9% for the September 2026 quarter, but about a point of that came from refunds of tariffs it had paid earlier, and the chief financial officer, Kevan Parekh, said the company has now received the vast majority of those refunds. The quarter before had even more refund help in it. Parekh said that once refunds are taken out of both quarters, the margin fell by about a point between them, mainly because memory cost more. He expects memory to account for most of the further step down in the current quarter's guide as well.

Memory goes into every iPhone, Mac and iPad, so its price feeds into what each device costs Apple to make, though memory bought earlier at lower prices has cushioned part of the rise. An executive said memory costs will be higher again this quarter, that the company sees prices for memory purchases still increasing after that, and that the price increases Apple put through on Mac and iPad at the end of June and on iPhone in September have provided some offset.

The squeeze arrives in a quarter Apple expects to set a revenue record. It guided sales growth of 7% to 10% on a year earlier, a range it tied to constrained supply, and operating expenses still rising, by 11% to 13%, driven by research and development, in particular AI. Taking the weak end of each range (the bottom of the sales and margin guides, the top of the expense guide), then the strong end, gross profit would come out flat to about 5% higher than a year earlier, by our arithmetic, and operating profit about 5% lower to 3% higher. Record sales, in other words, with profit dollars close to where they were.

The revenue range may prove cautious. Last quarter Apple's sales grew 12%, above the top of the range it gave in July, while this quarter's range already allows for constrained supply.

The balance sheet shows Apple buying ahead. Inventories at the end of last quarter stood at $14.5 billion, against $5.7 billion a year earlier, and money owed to suppliers rose by more than the stock did. An executive said manufacturing purchase obligations grew by $33 billion during the quarter as Apple worked to secure supply, and that Mac and iPad will be short of memory in the current quarter because demand ran above the company's expectations. Apple also said it expects some benefit in the current quarter from carrying inventory.

Services, the business of App Store fees, subscriptions and licensing, is slowing over the same months. Apple guided growth of 8% to 9%, after about 10% last quarter, and named third-party licensing and currency as the main drags. The computing cost of answering Siri AI requests will also be charged against services. With the executive expecting memory prices to go on increasing after this quarter, the guide describes a fiscal year that opens with more sales and a thinner margin on each of them.