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By Christine Ji

Although iPhone demand remains strong, Apple faces a worsening memory crunch and a slowing services business

Apple forecasts a record holiday season for the December quarter, but also a margin squeeze.

Apple once again showed that it's not immune to problems plaguing the broader technology sector, as lingering supply-chain uncertainties helped outweigh strength in the company's iPhone business.

Shares were down 3% in after-hours action on Monday.

The September quarter was an unconventional one for Apple (AAPL), as the company's staggered iPhone release schedule meant that only the premium 18 Pro models were launched in the final week of the company's 2026 fiscal year. Still, strong demand led the company to report a September-quarter record for iPhone revenue, and overall revenue grew 12% to $114.5 billion. Earnings per share came out to $2.10. Both surpassed Wall Street's estimates, which were for $113.40 billion and $1.99, respectively.

"Apple beat on revenue and EPS, but nobody's celebrating," Investing.com senior analyst Jesse Cohen wrote in a Monday note. "Good enough is not good amid the current market backdrop."

Cohen pointed out that revenue from China, wearables and home devices all came in lower than analysts were expecting. Although services revenue reached an all-time high of $31.57 billion, growth decelerated sequentially to 9.8% from 12.1% in the June quarter.

The report was "fine," Cohen said, but investors are concerned that Apple's non-iPhone businesses "aren't pulling their weight."

Additionally, rising memory costs are proving to be a sustained problem for Apple, with CEO John Ternus saying on the earnings call that costs are expected to rise even further in December.

"We remain cautious on Apple in the near term, as accelerating memory-cost inflation pressures gross margins," Bernstein analyst Mark Newman said in a note to clients. Gross margins measure the percentage of revenue retained after the company pays for the costs of making its products.

Apple raised prices on many of its offerings earlier this year, and is taking steps to offset the rising prices by relying on previously purchased inventory and cutting costs on non-memory components.

But the impact of the memory crunch is already being felt in Apple's margins. Gross margin for the September quarter was 47.9%, down from June-quarter levels even when factoring in the impact of tariff refunds.

While Apple anticipates that the December quarter will set a new revenue record, the company cautioned that gross margin will contract to between 45% and 46%, primarily due to memory prices as well as costs related to the ramp of its AI-infused Siri.

Looking forward, supply-chain constraints are also clouding the rollout of Apple's iPhone Duo. Pre-orders for the Duo went live in October, so the December quarter will give investors a better idea of how the foldable phone is performing. But the popularity of the Duo has led to delivery dates being pushed to January, and Apple didn't offer much insight into the production timeline.

-Christine Ji

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