Apple Beats Earnings Forecasts as iPhone Sales Rise, but Holiday Profit Margins Face Pressure

Record sales meet a more expensive holiday season

Apple reported $114.48 billion in revenue for the quarter ended September 26, 2026, and forecast its biggest holiday quarter yet, but rising memory costs and a weaker profit margin outlook sent its shares down about 4% in extended trading on November 2. The results were the first presented under chief executive John Ternus, who succeeded Tim Cook on September 1.

The iPhone generated $57.58 billion, up about 17% from a year earlier, while Mac revenue jumped 24% to $10.79 billion. Those gains helped Apple beat expectations for revenue and earnings despite disappointing results from Greater China, iPads and its wearables, home and accessories business.

Apple expects revenue to grow between 7% and 10% in the December quarter, ahead of the average analyst forecast of 6.1%. That would put sales at roughly $153.82 billion to $158.13 billion. Yet the company expects to retain a smaller share of that money after paying the direct costs of its products and services.

Chief financial officer Kevan Parekh described the holiday outlook during the earnings call, saying it already takes supply limits into account:

We expect our December quarter total company revenue to grow between 7 and 10% year over year, which reflects our best view of constrained supply. We expect this to be the best quarter for revenue in the history of the company.

Investors had already priced in considerable success. A rally since late June had added about $1 trillion to Apple's market value. The earnings release brought strong sales, but also higher production costs, limited availability of its new foldable phone and slower growth in services.

What the quarterly figures show

Apple's revenue increased from $102.46 billion a year earlier, a gain of about 12%. Growth nevertheless slowed from 16% in the preceding quarter. Net income reached $30.71 billion, while diluted earnings per share rose to $2.10 from $1.85.

Analyst surveys put expected revenue at roughly $113.4 billion and earnings at about $2 a share. Apple therefore exceeded both measures, although tariff refunds contributed 5 cents to earnings per share. Subtracting that contribution gives $2.05, still above the forecasts.

Apple's fiscal year ended with revenue of $478.8 billion and net income of $132.2 billion. The annual revenue increase was about $62.7 billion, of which the iPhone supplied $44.5 billion, or approximately 71%. Services contributed another $14.1 billion and Macs $4.2 billion, while iPads and accessories each slipped slightly.

The figures reveal how concentrated Apple's growth remains. The iPhone produced just over half of quarterly revenue, and its annual increase was larger than the increases from all other businesses combined. Services supplied about 27.6% of quarterly sales, calculated from $31.57 billion out of $114.48 billion.

Apple also reported an active installed base exceeding 2.5 billion devices. That means devices still in use, rather than the number sold during the quarter or the number of individual customers. A person with an iPhone, Mac and Apple Watch can account for several active devices, each connected to Apple's software and services.

Why the margin forecast unsettled investors

Apple forecast a December quarter gross margin of 45% to 46%, down from 47.9% in September and 50.1% in June. Analyst estimates for the December margin ranged from 46.3% to about 47%, putting the company's entire forecast below those expectations.

Gross margin is the share of sales left after paying the direct costs of delivering products and services. At 47.9%, Apple retains about 47.9 cents from each dollar before research, administration, taxes and other expenses. A margin of 45% to 46% would leave 45 to 46 cents.

September's margin included a benefit of approximately one percentage point from tariff refunds. Without that contribution, the figure would have been around 46.9%. The December forecast is therefore between 0.9 and 1.9 percentage points below that adjusted September level.

Parekh identified higher memory costs and expenses associated with introducing Siri AI as pressures on profitability. Memory costs were already higher than in June, and management expects further increases beyond December. Apple has raised prices across product lines to recover some of the additional expense, including a $100 increase on iPhones.

Ternus described the memory pricing situation as "unprecedented" and said Apple had raised prices "reluctantly". For shoppers, the cost pressure has already reached device prices. For shareholders, the holiday forecast means record revenue could arrive alongside a smaller gross profit contribution from each dollar sold.

The iPhone leads, but launch dates move revenue

Apple's $57.58 billion in iPhone revenue exceeded analyst expectations of roughly $56.5 billion. The September quarter included only a short period of sales for the iPhone 18 Pro and Pro Max. Much of the quarter still depended on the preceding iPhone generation.

Apple changed its usual release pattern by introducing only the new Pro models in September. The standard iPhone 18 and a new iPhone Air are expected in the first half of 2027. The iPhone Duo, its first foldable phone, reached stores on October 23, after the September quarter had closed.

The calendar matters because sales of several prominently announced products will appear in later results. The December quarter includes the Duo and new Macs, while the standard iPhone releases will fall later. The main dates are:

• September 1, 2026: John Ternus became chief executive.
• September 18: The iPhone 18 Pro models went on sale.
• September 26: Apple's fiscal fourth quarter and fiscal year ended.
• October 23: The iPhone Duo went on sale.
• November 2: Apple released its quarterly results and holiday outlook.
• November 6: New Mac models are scheduled to reach customers.
• First half of 2027: The standard iPhone 18 and new iPhone Air are expected.

Apple's holiday performance will depend partly on how many new devices it can deliver before the quarter ends. Interest in a product and completed sales can fall in different periods when customers face long delivery waits.

The Duo faces supply limits and display complaints

Apple's iPhone Duo starts at $1,999, making it an expensive addition to the holiday lineup. Chief operating officer Sabih Khan said production was increasing, but management gave no date for supply to catch up with demand.

Buyers were already facing delivery estimates into January after the October launch, with hinges, flexible displays and final assembly placing pressure on production. Reported supplier targets had risen, but those targets covered different periods and were not confirmed by Apple.

Apple also addressed early Duo screen complaints. Ternus said a very small percentage of devices had been returned because of display problems and that affected units were being replaced. Apple did not publish a return count or a failure rate.

The foldable phone has a second challenge beyond manufacturing: making its larger screen useful. Its uneven app experience at launch included applications still using layouts designed for conventional phones. The pace of software updates will affect what customers can do with the device after receiving it.

Apple must therefore manage production volume, product quality and software adaptation at the same time. More factory output would help fill orders, while reliable screens and useful applications matter to people paying a premium for the new design.

China's recovery falls short of expectations

Greater China revenue rose 21% to $17.54 billion, driven by iPhone and Mac sales. The region includes mainland China, Hong Kong and Taiwan. Despite the increase, revenue fell below analyst estimates ranging from $18.55 billion to $18.75 billion, a shortfall of roughly $1 billion to $1.2 billion.

Apple's annual figures show a stronger recovery than the quarterly disappointment alone suggests. Greater China generated $82.4 billion in fiscal 2026, up $18 billion, or 28%, after three consecutive years of declining sales. Its annual increase represented about 29% of Apple's $62.7 billion revenue gain.

The region's importance extends beyond its share of sales. Greater China produced about 17% of annual revenue, calculated from $82.4 billion out of $478.8 billion, but supplied a larger share of the year's growth. Maintaining that recovery matters as Apple increases prices and works through product shortages.

Other Asian markets moved in different directions. Revenue in the rest of Asia Pacific rose 15% to $9.71 billion, while Japan declined about 1% to $6.54 billion. The Americas remained Apple's largest market at $48.68 billion, followed by Europe at $32.01 billion.

Mac growth contrasts with weaker tablets and accessories

Mac revenue increased 24% to $10.79 billion, above analyst estimates of roughly $9.6 billion to $9.7 billion. Ternus attributed the performance to the lower priced MacBook Neo and the MacBook Pro. New Mac Studio and Mac mini models had also been announced in August.

Apple expects more computer releases to support the December quarter. A MacBook Pro with a touchscreen, an updated iMac and an entry MacBook Pro are scheduled to ship on November 6. Ternus said Apple has no plans to merge macOS and iOS, keeping its computer and phone operating systems separate despite the arrival of touch controls on a Mac.

iPad revenue fell about 10.4% to $6.23 billion, below analyst estimates ranging from $6.7 billion to $6.9 billion. The decline followed a 6% fall in the June quarter. Ternus pointed to supply constraints and a difficult comparison with the previous year.

Wearables, home and accessories revenue dropped 7.9% to $8.3 billion, against expectations of about $9 billion. Apple introduced AirPods 5 and two smartwatches during the September quarter, but those releases did not prevent the category from shrinking.

The HomeView smart home hub, introduced in August and selling in the current quarter, adds another product to Apple's effort in the home. Its display uses AI to present information for different family members. The December results will include its contribution alongside existing headphones, watches and home devices.

Siri AI creates revenue opportunities and running costs

Services revenue rose 9.8% to a record $31.57 billion, essentially matching expectations. The category includes the App Store, iCloud, Apple Music, Apple TV, AppleCare and licensing arrangements. Apple forecast slower growth of 8% to 9% for December, with Parekh identifying licensing revenue and foreign exchange as pressures.

Siri AI gives Apple another possible source of subscription revenue, but also creates costs each time some features are used. Tasks completed on a phone use its own processor. More demanding requests sent to Apple's Private Cloud Compute servers require computing resources that Apple pays to operate.

Parekh described those expenses as inference costs. Inference means running an AI model to produce an answer or perform a task, such as responding to a question or editing a photograph. Ternus said Siri handles 2.5 billion requests a day, though Apple did not specify how many require cloud processing.

Apple plans usage limits for some features that rely on servers and may sell expanded access through an iCloud subscription. Prices and detailed allowances have not been disclosed. The prospect gives frequent users a possible new subscription decision while giving Apple a way to charge for heavier use.

Ternus also pointed to AI as a reason for customers to buy newer hardware. Asked about monetization, he described the hardware opportunity:

One example is on the hardware side, right?

It offers a compelling reason for upgrading or switching.

Apple is therefore pursuing two commercial routes: encouraging device purchases and potentially charging for more cloud capacity. Both sit beside the immediate expense of running the new features.

Cash remains strong as commitments and spending rise

Apple ended the quarter with $137 billion in cash and marketable securities and $80 billion in total debt. Quarterly operating cash flow was approximately $28.1 billion, while cash generated from operations across fiscal 2026 reached about $145.1 billion.

The company returned approximately $28 billion to shareholders during the quarter, including about $24 billion in share repurchases and $3.9 billion in dividends and equivalent payments. Annual buybacks totaled $86.4 billion. A dividend of $0.27 a share will be paid on November 16 to shareholders registered by November 12.

Spending on future products also increased. Research and development expense rose 32% to $11.73 billion, while total operating expenses rose 21% to $19.19 billion. Quarterly capital expenditure, covering purchases such as equipment and facilities, was $2.24 billion, below the $3.33 billion analyst estimate.

Apple's manufacturing purchase commitments increased by $33 billion between the June and September quarters. Those commitments represent future purchasing obligations rather than an equivalent amount of cash already spent. They show the scale of the supply arrangements Apple is making as component prices rise.

For December, Apple expects operating expenses of $20.4 billion to $20.8 billion and an effective tax rate of about 17%. Its outlook assumes current global tariff rates and policies remain in place and that the economic outlook does not worsen. The immediate tasks are concrete: deliver more Duos, bring new Macs to customers and manage growing component and AI expenses during its busiest sales period.

Key Points

• Apple reported September quarter revenue of $114.48 billion and net income of $30.71 billion.
• iPhone revenue rose about 17% to $57.58 billion, while Mac revenue increased 24% to $10.79 billion.
• Greater China sales rose 21% to $17.54 billion but missed analyst expectations.
• Apple forecast December revenue growth of 7% to 10%, alongside a lower gross margin of 45% to 46%.
• Higher memory costs and Siri AI expenses are putting pressure on profitability.
• iPhone Duo supply remains constrained, with no date given for supply to meet demand.
• Apple may offer expanded access to cloud AI features through an iCloud subscription, with pricing undisclosed.