Apple warned investors that unprecedented memory chip cost increases and elevated AI cloud expenses will squeeze fourth-quarter 2026 gross margins to between 45% and 46%, missing Wall Street targets. Under new CEO John Ternus, Apple projected strong holiday sales growth of 7% to 10% and capped a record fiscal year in China, where quarterly revenue rose over 20% to $17.5 billion. However, shares fell 3% after hours due to margin pressures and a slowing services growth outlook.
Memory chip cost pressures
- ▪Apple Chief Executive Officer John Ternus warned on November 2, 2026 that an unprecedented rise in memory chip prices caused by data center construction will squeeze gross profit margins
- ▪Apple stated that cloud computing costs for running its Siri AI voice assistant powered by Google models will further reduce gross profit margins
- ▪Apple predicted gross margins of 45% to 46% for the fourth quarter of 2026, falling below Wall Street analyst forecasts of 47%
iPhone Duo launch issues
- ▪Apple maintained that reports of screen cracks on the newly launched foldable iPhone Duo affected only a limited number of devices
- ▪Apple's foldable iPhone Duo encountered delivery delays and reports of screen cracks following its Manhattan retail debut on October 23, 2026
Q4 2026 sales outlook
- ▪Global smartphone shipments fell 20% in the third quarter of 2026 due to component cost inflation, according to Counterpoint Research data
- ▪Apple forecast fourth-quarter 2026 sales growth between 7% and 10% year over year, topping Wall Street expectations of 6%
- ▪Apple expanded its global smartphone market share from 18% to 22% in the third quarter of 2026 despite broader industry contraction
China market record revenue
- ▪Apple achieved China revenue of $17.5 billion in the quarter ending September 2026, representing a 20% to 21% year-over-year increase
- ▪Apple recorded 28% full-year sales growth in Greater China for fiscal 2026 alongside an all-time high active device installed base in mainland China
Services business growth slowdown
- ▪Apple's services revenue reached $31.6 billion in the quarter ending September 2026, matching Wall Street financial estimates
- ▪Apple forecast services division growth of 8% to 9% for the final quarter of 2026, missing Wall Street projections of 12%
John Ternus CEO transition
- ▪Former hardware chief John Ternus led his first earnings call as Apple Chief Executive Officer on November 2, 2026 after assuming the position in September 2026
- ▪Apple shares dropped approximately 3% in after-hours trading on November 2, 2026 following John Ternus's margin squeeze warning and reduced services forecast
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