"It's tough, really tough": Even after raising iPhone prices by 10%, why is thriving Apple worried? [Click eStock]

"Hit by Rising Memory Prices"
September-Quarter Results Held Up Well, but
Margins Expected to Weaken in December Quarter

Analysts say a sharp rise in memory costs has put a limit on Apple’s profit margin growth. They warn that the stock can rebound only if the company demonstrates tangible results from its transition to AI services.

According to Samsung Securities on November 4, analyst Lee Jong-wook said the previous day, “Apple once again proved the resilience of its core businesses by defending revenue despite weakening industry demand.” He added, “But a closer look at the results reveals signs across the board that profit margins are nearing their limits.”

Memory Costs Set to Weigh on Margins in December Quarter

Apple’s revenue for the fourth quarter of fiscal 2026 (July–September) rose 12% year over year to $114.5 billion, while its gross margin came in at 47.9%, up 0.7 percentage points year over year, in line with market expectations. iPhone revenue held up well at $57.6 billion, an increase of 17%, while Mac revenue reached $10.8 billion, up 23.7%, driving growth. Revenue in China also rose 21% to $17.5 billion.

The concern is slowing profitability. Apple forecast year-over-year revenue growth of 7% to 10% for the December quarter, signaling its highest quarterly revenue ever, but projected a gross margin of just 45% to 46%, below the market estimate of 46.3%.

“The direct cause of the after-hours stock decline was the December-quarter guidance,” analyst Lee said. “The biggest reason is unprecedented pressure from memory costs.” In fact, Apple’s manufacturing purchase commitments for the September quarter increased by $33 billion from the previous quarter.

Actual profitability in the hardware segment has already started to weaken. The hardware gross margin was reported to have increased 1.0 percentage point year over year, but excluding the roughly 1.5-percentage-point benefit from tariff refunds, it actually fell 0.5 percentage points. This was because the rise in material costs was substantial despite higher prices for new products.

“Apple raised the price of its new iPhones by about 10%, but the impact of higher material costs was significant,” analyst Lee said. “These figures are from before the increase in memory prices was fully reflected in iPhone costs, so it cannot be said that the cost burden has already been fully priced into the stock.”

Siri AI Must Gain Traction and Prove Actual Usage

The growth of the services business is also entering a period of structural transition. Services revenue grew 10% year over year in the September quarter, slowing from 12% in the previous quarter. Excluding the roughly 4-percentage-point negative impact from the strong U.S. dollar, the business is holding up relatively well, but analysts say its existing revenue model alone offers limited room for further growth.

Following its partnership with Google Gemini, Apple plans to launch Siri AI, developed in partnership with Alibaba’s Qwen, in China starting in December. The company intends to pursue monetization by introducing tiered pricing based on daily usage, but analysts say actual usage data must be verified first.

“I agree with Apple’s approach of adopting external AI, integrating it with its own services, and connecting it to devices, but we need concrete data showing an increase in usage,” analyst Lee said. “Stock market doubts about Siri AI usage have yet to dissipate.”

Need for Next-Generation Product Differentiation and Evidence to Build Confidence

Analysts say Apple must demonstrate clear product innovation and momentum from AI to justify its high valuation, with a price-to-earnings ratio (PER) above 30. They say clear product differentiation in the 2026 iPhone Duo and the 2027 20th-anniversary iPhone is essential.

“As memory cost pressures intensify, Apple must deliver clear product differentiation and establish Siri AI as a new driver of services growth to prove it is special,” analyst Lee said. “The time has come to look beyond the resilience of its existing core businesses and verify the substance of its new growth drivers. We are optimistic about the future, but have yet to find the evidence needed to become confident.”

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