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Apple Inc. (NASDAQ: AAPL) lost about 4% of its value after reporting fiscal fourth-quarter results on November 2. Revenue of $114.5 billion and diluted earnings of $2.10 per share both beat Wall Street forecasts, but the company guided gross margin for the December quarter to 45-46%, below analyst expectations. Management blamed record memory-chip costs. Shares had been trading near their 52-week high of $351.73, leaving little room for a disappointment on profitability.Why Did Apple Shares Fall Despite the Earnings Beat?
Apple shares fell because the forward margin guidance reset expectations for profitability just as the stock carried a premium valuation. Shares slid as much as 4.4% in after-hours trading on Monday and extended the decline into Tuesday. Analysts had expected a December-quarter margin above the top of Apple's 45-46% range.
- Q4 revenue was $114.5B, up 12%, with EPS of $2.10 against a $1.99 consensus.
- December-quarter gross margin guidance of 45-46% trails the 47.9% just reported.
- Services growth is guided to 8-9%, down from 9.8% in the September quarter.
The reported quarter was strong. Gross margin reached 47.9%, though roughly one percentage point came from tariff refunds. That refund also added about five cents to earnings per share. Stripped of the refund, margin fell about a point from the June quarter. Higher memory costs were the primary cause.
What Is Driving Apple's Memory Chip Costs?
Competition from AI infrastructure builders for memory supply is pushing component prices to record levels. CEO John Ternus told investors that memory pricing "right now is unprecedented" and that further increases are expected beyond the December quarter.
The pressure comes from data-center operators buying large volumes of the same memory categories used in smartphones and computers. Apple, one of the largest buyers of memory chips in the world, has limited room to pass the increases to consumers during the holiday season. Guidance for 7% to 10% revenue growth in the December quarter reflects what management described as constrained supply, and COO Sabih Khan said production of the new iPhone Duo remains difficult to forecast.
How Is Services Growth Holding Up?
Services growth is slowing, with revenue of $31.57 billion up 9.8% year over year, down from 12.1% in the June quarter. That is the slowest pace in roughly three years. Management guided December-quarter services growth to 8-9%, citing currency headwinds and weak mobile gaming demand.
Services carries a far higher margin than hardware, so slower growth compounds the memory-cost effect on blended profitability. The segment has been central to the case for Apple's valuation, because it provides recurring revenue less exposed to component cycles.
Segment Performance
iPhone revenue rose 17.5% to $57.58 billion, the fourth straight quarter of double-digit growth. New models include the iPhone 18 Pro, iPhone 18 Pro Max and the iPhone Duo, which Ternus called "the most transformational iPhone since the original."Other categories were mixed:
- Mac revenue rose 24% to $10.79 billion.
- iPad revenue fell 10% to $6.23 billion.
- Wearables revenue fell 8% to $8.30 billion.
- Greater China revenue reached about $17.5 billion, up 21% year over year but more than $1 billion below the $18.58 billion consensus.
Capital Returns
Apple returned $28 billion to shareholders during the quarter and generated $28 billion in operating cash flow. The board declared a quarterly dividend of $0.27 per share, payable November 16. Fiscal 2026 revenue totaled a record $479 billion.
What Comes Next for Apple's Margins?
Margins face continued pressure through at least the March quarter. Management has signaled that memory prices will keep rising, and the one-time tariff refund that lifted the September quarter will not repeat at the same scale.
Three variables will shape the path:
- Memory contract pricing, which depends on how quickly suppliers add capacity for both AI and consumer devices.
- iPhone Duo supply, since premium models carry richer margins and constrained output limits the mix benefit.
- Services momentum, particularly whether gaming and licensing revenue stabilizes after the December quarter.
The next test is the fiscal first-quarter report in late January, when Apple will show how much of the memory increase it absorbed during its largest selling period.
Outlook
Apple delivered record iPhone sales and a profit beat, but guidance on margins and services pushed the stock down about 4%. The company is guiding to 7-10% revenue growth and a 45-46% gross margin in the December quarter, against a backdrop of rising memory costs tied to AI demand. Valuation had already priced in strong execution, so the market reaction centered on the outlook rather than the quarter just completed.
Mentioned tickers: AAPL
