Apple reported record revenue and profit on July 31, but the stock still fell as investors focused on softer forward guidance and rising memory costs. In after-hours trading, the shares were down as much as 8%.
The earnings call was Tim Cook’s last as Apple’s chief executive officer. He is set to step down on Sept. 1 and hand the job to Senior Vice President of Hardware Engineering John Ternus, while moving into an executive director role.
Quarterly revenue and earnings topped expectations
Apple said third-quarter revenue rose 16% year over year to $109.42 billion, ahead of analyst estimates of $108.65 billion and marking a record high. Earnings per share came in at $2.02, up 29% from a year earlier and above the $1.89 expected by analysts. Net profit increased 27%.
The company’s guidance for the current quarter, however, was more restrained. Apple projected revenue growth of 9% to 11% for the September quarter, below the roughly 12% that the market had been expecting.
Cook highlights memory inflation
The strongest reaction on the call came from Cook’s comments on memory pricing. He described the increase as a “flood,” saying, “We reluctantly raised prices because we are in the middle of a once-in-a-century flood in memory prices, with increases growing exponentially.”
Cook also said Apple would have to absorb higher memory costs this quarter. He added that the company could only partly offset the impact through inventory built up earlier and lower prices in other components.
Gross margin hit a record, helped by a one-off tariff refund
Apple’s overall gross margin reached a record 50.1%, above the 47.9% expected by analysts. About 2 percentage points of that figure, though, came from roughly $2 billion in tariff refunds returned by the U.S. government, which added $0.11 to earnings per share.
The refund followed a U.S. Supreme Court decision in February that overturned the White House’s global tariff measures. Apple treated the payment as a one-time gain. Excluding that item, gross margin would have been about 48.1%, close to market expectations.
Greater China and services both grew, but missed estimates
Greater China revenue rose 22% to $18.82 billion, while services revenue increased 12% to $30.74 billion. Both businesses remained in growth territory, but each came in below analyst forecasts.
Ternus takes over with several issues waiting
Before the earnings release, Apple had just regained a $5 trillion market capitalization, putting it back on top as the world’s most valuable company. Even so, the transition leaves Ternus with a list of immediate challenges, including chip shortages, higher memory prices and lagging AI progress.
After taking over on Sept. 1, Ternus will face an early test with the launch of the next iPhone and a new version of Siri.