Apple Says Rising Memory Costs and Siri AI Will Weigh on Holiday Quarter Margins

Following today’s earnings report, Apple held its quarterly earnings call, during which the company discussed the impact of rising memory costs on its profit margins and warned of additional pressure from Siri AI expenses during the holiday quarter. Here are the details.

Apple’s gross margins fall despite record revenue

Over the past few quarters, Apple has repeatedly warned that rising component costs would put pressure on its profit margins. Last quarter, gross margin was 50.1%, up from 49.3% in Q2. However, that included a roughly two-percentage-point benefit from tariff refunds.

Today, Apple reported that its gross margin fell to 47.9% in Q4 2026, with product gross margin dropping to 37.2%, down from 40.1% in the previous quarter. That represented a 2.2-percentage-point decline in company-wide gross margin and a 2.9-percentage-point drop in product gross margin.

Against the backdrop of record September quarter revenue of $114.5 billion, Apple CFO Kevan Parekh explained that tariff refunds once again provided some relief, though not enough to offset the impact of rising memory costs. He also noted that, excluding the impact of tariff refunds, the sequential decline in gross margins would have been roughly one percentage point, primarily due to higher memory costs:

“We saw strong performance in many services categories with all-time records in video, cloud services, payment services, and advertising, and a September quarter record in music. Company gross margin was 47.9%, and products gross margin was 37.2%. These both included a benefit from tariff refunds, which had a favorable impact of approximately 1 percentage point in the September quarter. When you remove the tariff refunds from both the June and September quarters, both company and product gross margin would be down about one point sequentially, primarily driven by higher memory costs.”

Parekh added that the pressure on Apple’s margins isn’t expected to ease anytime soon, with the company forecasting gross margins of between 45% and 46% for Q1 2027.

He attributed the expected decline primarily to higher memory costs, alongside the impact of the ongoing Siri AI rollout.

When asked to elaborate, Parekh explained that Siri AI will affect Apple’s margins in two ways. First, running the service will increase cloud costs. Second, Apple will have to spread out the recognition of some revenue from devices that include Siri AI over their lifetimes, rather than counting it all at the time of sale.

This, he added, is an accounting practice Apple already follows for other services bundled with its devices, such as Maps, Siri, and iCloud:

“Consistent with how we’ve always accounted for Maps, Siri, and iCloud, for the devices we sell that include these bundled services, we defer a portion of the revenue and recognize it over the life of the device.”

Meanwhile, CEO John Ternus described the current memory pricing situation as “unprecedented,” adding that Apple expects the cost of purchasing memory components to continue rising beyond the December quarter.

Ternus said recent price increases across the Mac, iPad, and iPhone lineups would help offset some of those costs, alongside existing inventory purchased at lower prices and savings on certain non-memory components. He also warned that the benefits of carrying lower-cost memory inventory would diminish over time. Apple did not say whether it expects to raise product prices yet again to compensate.

For the full breakdown of Apple’s Q4 2026 results, follow this link.

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