Apple warns memory chip costs to squeeze profit margins in upcoming quarter

Apple announced fourth-quarter revenue of $114.48 billion, surpassing analysts' expectations. However, the company cautioned that profit margins are likely to narrow in the December quarter because of higher memory-chip costs.

"What we’re seeing with memory pricing right now is unprecedented," said CEO John Ternus during the earnings call, adding that the company expects even higher memory costs for the upcoming quarter.

The tech sector has faced a supply shortage of high-bandwidth memory chips as demand from AI data centers has outstripped supply, prompting manufacturers such as SK Hynix to project the shortage could last for years. Apple has passed some of these costs to consumers through price increases on Macs, iPads and iPhones, but Ternus said inventory levels and lower prices for other components will only partially offset the impact.

"Looking beyond the December quarter, we see the pricing for memory purchases continuing to increase," Ternus warned.

Apple also highlighted that expanding its AI features, including the recently launched Siri AI, will add cloud-related expenses that affect gross margin, according to CFO Kevan Parekh.

"We look to continue to make the investments necessary to support the business, and we also see a wide range of ways that AI can contribute to revenue growth over time," Parekh said.

The company expects AI to drive future product upgrades and create opportunities with third-party apps and partners, while acknowledging that the current AI spending environment remains uncertain for investors.