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Apple shares fell following the release of a weaker-than-expected margin forecast during the company’s latest quarterly earnings report. The financial update marked the first earnings call led by new Chief Executive Officer John Ternus, who took over the role from Tim Cook.
Ternus Leads First Earnings Call as CEO
During the call, Ternus highlighted the company’s busy product launch schedule since he assumed the leadership position, mentioning new iPhones, home products, and touch-screen laptops. Ternus also addressed investors regarding artificial intelligence integration, noting that an updated Siri AI released during the quarter serves as a free upgrade for eligible iPhones while offering significant hardware monetization opportunities. According to US Top News and Analysis (cnbc.com), Ternus stated that the upgraded software provides a compelling reason for consumers to upgrade or switch devices.
The iPhone remained the primary driver of Apple’s sales, accounting for just over half of the company’s revenue during the quarter. iPhone sales grew by more than 17%, driven by previous models, while market share gains were also reported. However, the profitable services division expanded by less than 10%, marking the slowest growth rate for the category since 2022. Ternus told US Top News and Analysis (cnbc.com) that the division achieved all-time records in video, cloud services, payment services, and advertising, alongside a September quarter record in music.
Category Performance and Gross Margin Pressures
Product categories showed mixed results, with the Mac division surging nearly 24% to $10.79 billion in revenue due to strong demand for the MacBook Neo and MacBook Pro. Conversely, the iPad division contracted over 10% to $6.22 billion, which Ternus attributed to supply constraints and difficult comparisons to the previous year. The home products category saw sales decline nearly 8% to $8.3 billion, trailing analyst estimates. Ternus told US Top News and Analysis (cnbc.com) that the company is establishing a new plan for home accessories following the recent introduction of the HomeView device.
Gross margins came under scrutiny as Apple faced higher prices for key components, including storage, memory, and chips. The company reported a gross margin of 47.9%, which included a favorable impact of approximately one percentage point from tariff refunds, down from 50.1% in the previous quarter. Ternus explained to US Top News and Analysis (cnbc.com) that higher memory costs compared to the June quarter were partly offset by inventory benefits and lower costs on non-memory components. Meanwhile, Apple reported capital expenditures of $2.24 billion, remaining well below the heavy spending seen among peer technology giants investing heavily in AI infrastructure.
Market Context and Valuation
Industry analysts expressed mixed views on the stock following the report. Needham analyst Laura Martin told US Top News and Analysis (cnbc.com) that Apple faces strong competition from AI companies and has staked its future on the continued relevance of the smartphone. Barclays analysts maintained an underweight rating due to iPhone uncertainties and limited AI monetization, while Bank of America maintained a Buy rating with a $370 price target despite potential headwinds from component cost inflation.
IDC analyst Ryan Reith told US Top News and Analysis (cnbc.com) that the consumer electronics industry is navigating a severe market downturn characterized by surging prices for computer parts and memory. Apple shares slipped about 2% following the earnings release, leaving the company neck-and-neck with Nvidia at a market valuation of approximately $4.91 trillion.
