Apple's December Quarter Faces Margin Risk From Rising Memory Costs, Bernstein Warns

Analysts at Bernstein warned on Friday that Apple may face downside risk to its December quarter results due to sharply higher memory chip costs, which are expected to pressure the company's gross margins and earnings.

Despite the near-term concerns, the firm maintained its Outperform rating and $370 price target on Apple's stock.

Margin and Earnings Forecasts Trimmed

Bernstein's analysis of Apple's bill of materials (BOM) points to significant cost pressures, primarily from memory components. The firm lowered its fiscal first-quarter earnings per share (EPS) estimate for Apple to $2.87 from $3.00, placing its new forecast 2% below the Wall Street consensus of $2.92.

The note projects Apple's total gross margin will be 46.2%, which is 50 basis points below consensus. The impact is expected to be more pronounced for the iPhone segment, with a forecasted gross margin of 40.4%, or 390 basis points below consensus expectations.

The Impact of Component Costs

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According to analyst Mark Newman, rising costs for DRAM and NAND memory are the main drivers of the margin pressure. These components reportedly account for approximately 90% of the estimated $168 year-over-year cost increase for the 256GB iPhone 18 Pro Max.

Bernstein noted a few key factors influencing the financial model:

• International Pricing: Higher prices in markets outside the U.S. provide a partial offset. The firm estimates the global average iPhone price increase is about 1.3 percentage points higher than in the United States.
• Sales Mix: A favorable shift toward high-end models, expected to make up 70% of units, offers some support. However, this is tempered by expectations that demand will be concentrated in the lower-margin 256GB storage configuration, which does not fully absorb the higher component costs.

Even with the short-term headwinds, Bernstein's note concluded by reiterating its long-term view that Apple remains the primary "gateway to consumer AI."