"Will Apple Defend Memory Costs?... Profitability Put to the Test [Click e-Stock]"

First "Earnings Strength Test" Quarter After the iPhone Supercycle

Service Revenue Expected to Grow by Around 16%

Although Apple has encountered challenges due to rising memory semiconductor costs, analysts in the securities industry predict that the company will be able to maintain its earnings strength thanks to the growth of its high-margin service business.

According to Daishin Securities on July 23, research analyst Jaeun Cho stated the previous day, "This quarter marks the first phase in which profit and loss reflect both the slowdown of the super cycle and the increase in memory costs. The key point of interest is how robust Apple's earnings power remains amid the slowdown in growth." The analyst maintained a "buy" investment recommendation.

Gross Margin Defense Is Key

Researcher Cho identified gross margin as the most important variable in the upcoming earnings report for the third quarter of fiscal year 2026 (June quarter), which is scheduled to be released on July 31. Apple management had previously warned during the last earnings announcement that memory costs for the June quarter would rise significantly.

The company logo is attached to the Apple store in Paris, France. Photo by Reuters and Yonhap News

In the previous quarter, the gross margin reached a record high of 49.3% among the past eight quarters, but it is highly likely to fall back to the 48–49% range this quarter. "Even a 0.5–1 percentage point difference in margin translates into a profit gap in the range of hundreds of billions of won at Apple's scale," Cho explained. "The key to protecting profits will be whether service revenue, which continues to grow by around 16% year-on-year, can improve the high-margin mix."

He added, "It is especially important to check whether the launch of Maps ads and the expansion of ad inventory in the App Store are reflected in actual revenue. We estimate earnings per share (EPS) at $1.68–$1.82 and revenue at $100 billion–$106 billion."

Mac Replacement Demand and the China Market...New Leasing Program Also a Variable

Other drivers of growth beyond the iPhone, such as Mac and the China market, also warrant attention. While MacBook Neo is creating its own product cycle amid exploding demand for AI-related replacements, the impact of supply constraints on some models—including Mac mini and Mac Studio—on revenue conversion also needs to be assessed.

The China market posted approximately 28% year-on-year growth for two consecutive quarters, but recent leading indicators in the telecommunications device sector are trending downward, raising the prospect that hardware demand may moderate in the second half of the year.

New momentum arising ahead of the earnings release is also drawing attention. Cho commented, "Reports have emerged that Apple will partner with Klarna to launch its device leasing program, ‘Upgrade,’ on July 28. Given the anticipated launch of the foldable iPhone Ultra, this seems to be a move intended to stimulate replacement demand." He added, "In addition, the outcome of preliminary settlement negotiations with the U.S. Department of Justice (DOJ) over an antitrust lawsuit is expected to serve as a key indicator for the medium- to long-term revenue-sharing structure in its service business, such as search revenue distribution."

Researcher Cho concluded, "Even taking into account the slowdown of the iPhone cycle, I highly value the structural strength of service growth and the support that the $100 billion share buyback provides to earnings per share. Until we see a clearer trajectory for gross margin, it is more reasonable to maintain existing positions rather than increase exposure."

This content was produced with the assistance of AI translation services.