Apple warns that memory costs will continue to rise, declines to say whether prices will increase again
Apple CEO John Ternus said on the earnings call that current memory pricing is "unprecedented," that costs in the December quarter will be higher than in the September quarter, and that they will continue to rise afterward. Apple expects gross margin to fall from 47.9% in the September quarter to 45% to 46% in the December quarter; Mac and iPad supply will be constrained by the memory issue; inventory more than doubled year over year to $14.5 billion, and manufacturing purchase obligations increased by $33 billion compared with June. Asked whether prices would increase again, COO Sabih Khan did not respond directly.
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Apple expects memory costs to continue to increase in the December quarter and beyond, CEO John Ternus said during today's earnings call. Ternus, COO Sabih Khan, and CFO Kevan Parekh all commented on Apple's struggle with memory.
"What we're seeing with memory pricing right now is unprecedented," said Ternus. He said Apple saw higher memory costs in the September quarter, and the December quarter will be worse. "Looking beyond the December quarter, we see the pricing for memory purchases continuing to increase," he said.
Apple was able to offset September costs by using memory it stockpiled at lower prices and securing lower prices on some non-memory components. Apple expects the same factors to cover some of the December increases, along with price increases on iPads, Macs, and iPhones in June and September.
An analyst asked if prices could increase again, but Khan, who took the question, avoided offering a direct answer. Parekh said Apple's price increases were done "reluctantly" and the company is trying to balance the impact.
I think what we try to do is evaluate, and in doing that, we evaluate the unit's revenue margin, and we're really being thoughtful and deliberate at evaluating kind of the short-term and long-term considerations. And we really believe we're balancing this well.
Ternus said Apple expects a declining benefit from pre-purchasing memory over time. Apple's inventory more than doubled year over year to $14.5 billion, which suggests Apple is buying up memory before prices go up yet again. "As we work to improve supply, our manufacturing purchase obligations have increased by $33 billion from June to the September quarter, which you'll see in our annual filing when it comes out tomorrow," he said.
Apple expects gross margin to drop from 47.9 percent in the September quarter to 45 to 46 percent in the December quarter, primarily because of higher memory costs, plus some Siri AI costs. Mac and iPad supplies will be constrained in the December quarter because of memory issues.