Apple’s Q4 revenue hits record $114.5B as memory costs and AI spending squeeze margins

First earnings call under new CEO John Ternus

Apple’s new CEO, John Ternus, will host his first earnings call on November 4, marking a transition from long-time leader Tim Cook. The call comes as Apple faces investor scrutiny over its holiday-quarter outlook, AI strategy, and rising memory-chip costs. Ternus, who took over in September, has already initiated layoffs and price adjustments to streamline operations and offset manufacturing pressures.

Record revenue amid rising costs and supply constraints

Apple reported record revenue of $114.48 billion for the July-September quarter, a 12% year-over-year increase, surpassing analyst expectations of $113.39 billion. Net income rose to $30.71 billion, up from $27.46 billion the previous year. iPhone revenue reached $57.58 billion, a 17% increase and a September-quarter record, while Mac sales grew nearly 24% to $10.79 billion. However, iPad revenue fell 10% to $6.3 billion, missing forecasts due to supply constraints.

The company’s gross margin for the quarter was 47.9%, boosted by tariff refunds equivalent to one percentage point. However, Apple forecasted a decline to 45-46% for the December quarter, citing rising memory-chip costs and AI-related expenses, including cloud costs for its Siri AI push. Memory-chip prices, described as "unprecedented" by Ternus, are expected to weigh on profit margins for the foreseeable future.

iPhone Duo launch and production challenges

Apple’s first foldable phone, the iPhone Duo, launched on October 23 at a starting price of $1,999. The device faced immediate supply constraints, with preorders selling out within hours and shipments delayed until late January 2027. Some buyers reported screen issues, including cracks along the inner display’s central fold, prompting Apple to offer replacements. Analysts expect demand to continue outpacing supply despite these challenges.

Services growth slows, regulatory pressures mount

Apple’s services business, a key driver of recurring revenue, grew less than 10% to $31.57 billion, its slowest pace since September 2022. The deceleration reflects regulatory pressures and a slump in mobile gaming, which have reduced App Store commission revenue. The company saw an 18% drop in U.S. commission revenue due to regulatory changes, including a lawsuit by Epic Games that forced Apple to allow external payment systems. Analysts are watching whether Apple can boost services revenue through third-party AI apps and partnerships.

India’s record revenue masks volume decline

Apple reported record revenue in India for the July-September quarter, driven by higher device prices. However, analysts estimate iPhone sales volumes may have declined by 15-25% year-over-year due to two price hikes in 2026, which raised iPhone prices by 20% and MacBook/iPad prices by 25%. The average price per device in India surpassed $1,000 during the quarter, signaling a shift toward premium buyers. Tarun Pathak of Counterpoint India noted that Apple’s growth in India has surged nearly tenfold since 2019, but the market may be reaching a ceiling for volume growth at current price points.

AI strategy focuses on privacy and ecosystem integration

Apple’s AI strategy, particularly its Siri AI push, diverges from competitors like Meta and Google by prioritizing trust and privacy. The company overhauled Siri in June through a partnership with Google’s Gemini model, positioning its AI systems for "everyday people" rather than technical users. While Apple’s cautious approach to AI investment has helped it avoid ballooning capital expenditures—its expected $11 billion spend in 2026 pales next to Microsoft’s $170 billion or Meta’s $145 billion—soaring cloud costs for Siri AI are expected to impact gross margins.

Inventory surge and supply chain adjustments

Apple’s inventory surged 154.3% year-over-year to $14.54 billion, reflecting efforts to mitigate supply chain disruptions. Manufacturing purchase obligations increased by $33 billion from June to September. The company’s guidance for the December quarter anticipates revenue growth of 7-10%, below Wall Street’s 11.4% expectation, citing memory-chip costs and AI-related expenses as headwinds.

Market reaction and competitive positioning

Apple’s stock fell nearly 3% following the earnings report and an additional 2.8% in after-hours trading, reflecting investor concerns about margin compression and slowing growth in key markets like India. Despite this, Apple’s shares remain up 24% year-to-date, outperforming peers like Microsoft, Alphabet, Meta, and Amazon. The company’s ability to maintain profitability while navigating supply constraints, regulatory challenges, and AI competition will be a focal point for investors under Ternus’ leadership.

What this quarter reveals about Apple’s trajectory

This earnings report builds on Apple’s earlier announcement of record India revenue in Q4 FY26, driven by iPhone and Mac sales, as well as the launch of Apple Pay in partnership with Axis Bank. While the company has demonstrated resilience in premium markets, the latest results highlight emerging challenges: margin pressure from memory-chip costs, slower services growth, and volume declines in price-sensitive regions like India. These trends contrast with Apple’s traditional strength in ecosystem-driven demand and could signal a shift in its long-term growth strategy.

What this means

Lazyfounder analysis — our interpretation, not reported fact.

Apple’s first earnings call under John Ternus arrives at a pivotal moment for the company. The results underscore a strategic tension: while Apple is doubling down on premium pricing and AI integration, it faces growing pains from supply constraints, rising costs, and regulatory pressures. For founders and operators, this is a case study in how hardware-driven companies can navigate margin compression in a capital-intensive industry. The iPhone Duo’s launch challenges and India’s volume decline also serve as a reminder that premium pricing can strain growth in emerging markets, even as it bolsters revenue in mature ones. Apple’s ability to balance these trade-offs—while catching up in AI—will define its next chapter under Ternus.

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