Apple stock sinks as global memory crisis hurts profits, giving Ternus his first big test

John Ternus' first earnings report as Apple CEO was going fine until it was time to issue a forecast for the company's gross margin, one of the key metrics followed by investors.

Apple reported better-than-expected earnings and revenue on Monday, including in the company's core iPhone unit, and even projected sales in the current period that topped estimates. But just before Ternus opened the earnings call up to analysts' questions, CFO Kevan Parekh came forward with the first real piece of bad news.

Parekh said that for the December quarter, which goes through the holiday season, Apple's gross margin will be between 45% and 46%, trailing the 46.3% average analyst estimate, according to LSEG.

"This includes primarily the impact of higher memory costs, as well as some costs related to the ramp of Siri AI," Parekh said.

Apple shares slid about 3% in extended trading, following a drop of almost 2% during regular market hours on Monday.

It's part of an ongoing trend for Apple, which is absorbing some of the soaring costs from the global memory shortage. A margin drop in the fiscal first quarter would be a third straight decline for Apple, following a gross margin of 50.1% in the June period and 47.9% in the September quarter, boosted by 1 percentage point of tariff refunds.

At the midpoint of the forecasted range, it would be Apple's lowest gross margin since the fiscal fourth quarter of 2023.

"What we're seeing with memory pricing right now is unprecedented," Ternus said on the call, adding that the company is paying more than it did earlier this year. "Looking beyond the December quarter, we see the pricing for memory purchases continuing to increase."

Ternus, who took the reins from Tim Cook on Sept. 1, is grappling with a problem that his predecessor spent his final months addressing. Cook told The Wall Street Journal in June that the memory situation was a "hundred-year flood." Apple followed by raising prices across the board on Macs, iPads, and accessories.

In September, Apple increased the prices of its iPhones by $100, which Ternus said the company did "reluctantly."

Computer and smartphone makers everywhere are suffering. On Friday, Intel had its worst day on the market since the 1970s due to a weak forecast tied to the softening PC market. It's all because of insatiable artificial intelligence demand.

AI server giants like Nvidia and hyperscalers are buying up all the RAM they can find, and they're willing to pay a premium for it, leaving little supply for companies that make smartphones and tablets.