Apple posted fiscal third-quarter 2026 results, corresponding to the calendar second quarter, with strong iPhone and Mac demand lifting product revenue above expectations. Services, Greater China and iPad revenue came in below expectations. The headline print looked strong, but once the effect of tariff refunds is stripped out, core performance was broadly in line with what the market had expected.
The pressure point was guidance. Apple said next-quarter revenue is expected to grow 9%-11% year over year, below the roughly 12% consensus, while gross margin is projected at 47%-48%, still including about 1 percentage point of support from tariff refunds. On the earnings call, management highlighted tight supply for advanced-process chips and rising memory costs. The stock ended after-hours trading down 6.3% at $312.30.
Headline beats were helped by tariff refunds
Quarterly revenue totaled $109.42 billion, up 16.4% from a year earlier and slightly above the $108.8 billion consensus. Net income was $29.79 billion, up 27.1%, and EPS came in at $2.02, ahead of the $1.88 expectation.
That said, tariff refunds contributed $0.11 to EPS. Excluding that item, EPS was about $1.91, close to consensus. Gross margin was 50.1%, but roughly 2 percentage points of that came from tariff refunds. On an adjusted basis, gross margin was about 48.1%, matching market expectations. In other words, the quarter beat at the reported level, while underlying profitability did not materially exceed what investors had already priced in.
Cash flow remained one of the strongest parts of the report. Operating cash flow was $34.37 billion and free cash flow was about $31.9 billion. Compared with other large technology companies that have sharply expanded AI capital spending, Apple is still running a relatively light-asset investment structure, with more AI and chip spending flowing through research and development. R&D expense rose 32.3% year over year to $11.73 billion, showing investment is still accelerating, but without putting visible pressure on free cash flow so far.
iPhone and Mac drove hardware strength, while services lagged
Product revenue reached $78.68 billion, up 18.1% year over year and above the $77.25 billion expectation. iPhone revenue increased 21.7% to $54.25 billion, topping the $53.6 billion consensus. Mac revenue rose 28.7% to $10.35 billion, well above the expected $8.62 billion.
Management said demand for MacBook Neo and MacBook Pro was strong. Even with some supply constraints, Mac recorded a revenue high for the same period in prior years. iPad revenue fell 5.9% to $6.19 billion, missing the $6.88 billion expectation. Wearables, home and accessories revenue rose 6.5% to $7.88 billion and was broadly in line with expectations. Hardware growth was concentrated in iPhone and Mac, while the rest of the product lineup showed a more mixed picture.
Services revenue rose 12.1% to $30.74 billion, below the $31.36 billion expectation. Services gross margin fell 1.1 percentage points from the prior quarter to 75.6%, which management attributed to changes in business mix. Apple said paid subscriptions have surpassed 1.5 billion and the active installed base has exceeded 2.5 billion. Those figures point to a durable long-term foundation, but at current valuation levels, investors are watching whether services can keep growing faster than hardware. This quarter, both services revenue and margin came in below optimistic expectations.
In Greater China, revenue was $18.82 billion, up 22.4% year over year. Growth remained relatively fast, but it slowed from the prior quarter and came in below the market view that growth would stay roughly stable. The China business has not turned weak, but slower growth, combined with intensifying competition from local brands, suggests Apple still needs new product cycles, channel adjustments and AI features to defend market share.
Next-quarter guidance points to tighter supply and higher costs
Apple guided to 9%-11% year-over-year revenue growth for the next quarter, below the roughly 12% consensus. Management said foreign-exchange changes will create a sequential drag of about 2.5 percentage points on revenue growth, while supply constraints will become much more pronounced in the September quarter and affect iPhone, Mac and iPad.
On the call, management said supply limitations in the June quarter were concentrated mainly in Mac, with iPhone and iPad seeing relatively limited impact. In the September quarter, tight capacity for advanced-process chips is expected to spread across all three major product lines, and the supply chain will have less room than normal to reallocate capacity. That means slower growth next quarter does not map fully to weaker demand; delivery capacity will also be a key constraint.
Margin pressure stands out even more. Apple forecast next-quarter gross margin at 47%-48%, still including about 1 percentage point from tariff refunds. Excluding that benefit, the implied underlying gross margin is about 46%-47%, below this quarter’s adjusted 48.1%.
Memory pricing was another issue management addressed directly. Apple confirmed that memory prices paid in the March quarter were higher than in the prior December quarter, June-quarter prices were again meaningfully above March levels, and prices are expected to keep rising in the September quarter. Previously purchased lower-cost inventory can still provide some near-term cushion, but that benefit is expected to fade after September. Lower prices for some non-memory components can offset part of the pressure, but if memory market prices continue to rise, the risk of costs passing through to gross margin and end pricing will increase.
AI monetization is still early, while the stock reaction reflected elevated expectations
Apple said the test version of Siri AI has received positive feedback, and the company is considering charging heavy AI users through higher-tier iCloud+ plans. That offers an early path for monetizing AI features, but management also said compute costs, user intensity and a full monetization model are still being evaluated. In the near term, Siri AI is more likely to contribute through device upgrades and stronger ecosystem stickiness than through a clearly proven increase in services revenue.
Before earnings, Apple had bucked broader pressure on technology shares and reached a record high. The stock was up about 24% for the year, and its market capitalization briefly topped $5 trillion. Investors had treated Apple’s relatively low AI capital spending, strong free cash flow and stable consumer electronics demand as defensive traits, and that rotation had already embedded high expectations into the share price.
Against that backdrop, adjusted EPS and gross margin only coming in roughly in line, services and Greater China revenue missing expectations, and next-quarter guidance facing pressure from supply, foreign exchange and memory costs led to a rapid round of profit-taking. Apple shares first fell about 2% after the earnings release, then dropped more than 8% at one point during the call, before finishing after-hours down 6.3%.
The report did not show a clear deterioration in end demand. iPhone, Mac and cash flow all remained solid. What the market is now focused on is no longer just demand growth, but whether products can be delivered on time, whether memory costs can be kept under control, and whether services and AI revenue can offset pressure on hardware margins. With the stock having already priced in the idea of Apple as a lower-capex defensive AI name, simply meeting expectations was no longer enough to support a higher valuation.