Apple Faces Headwinds: Strong Sales Overshadowed by Weak Forecast & Supply Crisis in Cook’s Final Earnings Call

Despite reporting stronger-than-expected earnings and revenue for its fiscal third quarter, largely fueled by a remarkable 22% surge in iPhone sales, Apple's outlook for the current period has sent ripples through Wall Street. The tech giant's shares tumbled over 6% in extended trading after it delivered soft guidance, specifically citing ongoing “supply constraints” and escalating memory costs.

Video: Apple shares slip in extended trading despite earnings beat (2:36)

This earnings announcement carries particular significance as it marks CEO Tim Cook's final report before he transitions to executive chairman, making way for John Ternus, a 25-year Apple veteran and current head of hardware, to assume the CEO role.

Here’s a snapshot of Apple’s performance compared to LSEG consensus estimates:

• EPS: $2.02 (not comparable to analyst estimates of $1.89)
• Revenue: $109.42 billion, surpassing the $108.65 billion estimated

Delving into other key areas:

• iPhone revenue: $54.25 billion vs. $53.86 billion estimated
• Mac revenue: $10.35 billion vs. $8.74 billion estimated
• iPad revenue: $6.19 billion vs. $6.92 billion estimated
• Wearables revenue: $7.88 billion vs. $7.82 billion estimated
• Services revenue: $30.74 billion vs. $31.22 billion estimated
• Gross margin: 50.1% (not comparable to analyst estimates of 47.9% due to tariff rebates)
• Cash: $146.52 billion

Net income soared to $29.79 billion, or $2.02 per share, up from $23.43 billion, or $1.57 per share, a year prior. Apple attributed 11 cents per share of these earnings to tariff rebates.

Apple continues to grapple with a global memory crunch, a situation Cook previously described as a "hundred-year flood." This, coupled with a surge in demand for chip manufacturing capacity, has already necessitated price increases for Macs and iPads. While iPhone price hikes haven't been confirmed, many analysts anticipate them this year.

The company is also preparing for a significant September launch, introducing a redesigned Siri leveraging Google technology alongside new iPhone hardware. This initiative is seen as a crucial test for Apple amidst investor concerns about its standing in the rapidly evolving artificial intelligence landscape.

This quarter marked the third consecutive period with revenue growth exceeding 15%.

What Apple Is Doing About Component Shortages

Addressing the soft guidance tied to supply constraints, Cook elaborated on Apple's strategy for managing rising memory costs, confirming that the company has paid more in each of the last three quarters and anticipates even higher costs. While some of this will be offset by existing inventory and expected savings on non-memory components, Cook sees no immediate end to the issue, urging for market expansion beyond the current three primary suppliers. "If you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business," he stated.

Incoming CEO John Ternus Says Little on Cook's Last Call

Image: John Ternus, senior vice president of hardware engineering at Apple Inc., during an Apple event in New York, US, on Wednesday, March 4, 2026. (Credit: Adam Gray | Bloomberg | Getty Images)

John Ternus, the incoming CEO, maintained a low profile during Cook's final earnings call. Cook praised the seamless transition and expressed excitement for Ternus to lead Apple into its next era, confirming Ternus would lead future calls. When eventually prompted, Ternus conveyed optimism, stating, "There is so much opportunity for us with everything that's happening in this space, and we're just really focused on our plans and very excited about it." Ternus is scheduled to officially take over on September 1.

Apple's Guidance for the Quarter Misses Expectations

Apple projected revenue growth for the current quarter to be between 9% and 11%, falling short of analysts' expectations for 12% expansion. CFO Kevan Parekh noted continued high demand for iPhones, anticipating mid-teens annual sales growth. However, he warned, "we do expect iPhone revenue to be impacted by these foreign exchange headwinds and supply constraints." Apple forecasts a 2.5 percentage point drag on growth from foreign exchange in the fiscal fourth quarter, with gross margin expected to range between 47% and 48%.

Mac Boosted by Low-Cost Laptop

Image: Apple MacBook Neo laptop computers during an Apple event in New York, US, on Wednesday, March 4, 2026. (Credit: Adam Gray | Bloomberg | Getty Images)

Mac sales saw a significant nearly 29% jump to $10.35 billion, a performance Cook attributed to the strong showing of the MacBook Neo, a low-cost laptop featuring an iPhone chip introduced in March. Robust MacBook Pro sales also contributed to this surge. Apple raised Mac prices, including for the MacBook Neo, toward the end of the quarter due to the supply crunch for memory and processor manufacturing capacity, a "difficult situation" acknowledged by Cook.

Apple Still Grappling with Component Shortages

Despite hiking Mac and iPad prices in June, Apple has largely refrained from doing the same for iPhones in most markets. Cook described the situation as "difficult" and "not good for the consumer," reiterating, "Obviously, the memory prices are choking, and so we'll have to look at alternatives."

Tariff Rebate Boosts Gross Margin Over 50%

Image: Apple CEO Tim Cook speaks as U.S. President Donald Trump (L) looks on during an event in the Oval Office of the White House on August 6, 2025 in Washington, DC. (Credit: Win Mcnamee | Getty Images)

Tariff refunds played a crucial role, adding 11 cents to Apple's earnings per share. These rebates from U.S. tariffs contributed two percentage points to the gross margin, pushing the total to a record 50.06%. This boost comes after some of President Donald Trump's tariffs were overturned by the Supreme Court earlier this year. Without these rebates, Apple's margin would have been closer to estimates.

China Sales Surge 22%

Image: Two young women walk out of an Apple Store with a brightly illuminated Apple logo and a wall of colorful phone cases visible behind them, on June 4, 2025 in Chongqing, China. (Credit: Cheng Xin | Getty Images)

Apple's Greater China region, encompassing China, Hong Kong, and Taiwan—the company's third-largest market—reported a substantial 22% increase in revenue, reaching $18.82 billion. Cook highlighted record June quarter iPhone sales and the Mac's best-ever quarter in the region as key drivers. The Americas remains Apple's top market, followed by Europe.

Declining iPad Sales, Muted Wearables Growth

Image: The newly released iPad Air is displayed during the "Special Apple Experience" launch event at the Apple Store in the Manhattan borough of New York City, on March 4, 2026. (Credit: Timothy A. Clary | AFP | Getty Images)

iPad sales experienced a 6% annual decline, which the company attributed to a challenging comparison with the prior year's quarter, when sales surged due to a new low-cost iPad launch. Conversely, revenue from the wearables and home category increased by 6% annually to $4.9 billion, exceeding estimates.

Apple Hits 1.5 Billion Subscriptions

Image: Apple Podcasts on App Store displayed on a phone screen is seen in this illustration photo taken in Poland on June 5, 2024. (Photo by Jakub Porzycki/NurPhoto via Getty Images)

Apple's high-margin services division continued its consistent growth, posting a 12% revenue increase to over $30 billion, though it slightly missed analyst estimates due to foreign exchange headwinds. The company pointed to growth across advertising, the App Store, AppleCare, music, video, cloud, and payment services. Cook proudly announced that Apple now boasts 1.5 billion paid subscriptions, including iCloud and App Store subscriptions.

Apple Sees 'Incredible Blowout' in iPhone Sales

iPhone sales jumped by nearly 22% annually to $54.25 billion, significantly topping analyst estimates and demonstrating robust growth for the iPhone 17 cycle ahead of an anticipated September hardware launch. In an interview, Cook lauded the iPhone 17's performance as an "incredible blowout," noting a strong presence of "upgraders"—customers replacing older iPhones with new models—during the quarter. "We just had significant momentum on the iPhone really since the launch," Cook commented.

Down Day for Apple's Stock

Video: What to watch in Apple’s earnings report ahead of Tim Cook’s final earnings call as CEO (1:33)

Apple shares saw a decline leading into the third-quarter report, closing down 1.4% at $333.43. This marked the second consecutive day of slippage after the stock briefly reached a record $5 trillion market cap milestone on Tuesday. Despite the recent drop, Apple shares remain up about 23% for the year.

Trying to Keep the Streak Going

Image: Photo taken on Aug. 14, 2023 shows iPhones at an Apple store in Hangzhou, East China's Zhejiang province. On the same day, data released by TechInsights showed that Apple's iPhone sales in China surpassed the United States for the first time in the second quarter of 2023, becoming the largest single market for iPhone shipments. (Credit: Costfoto | Nurphoto | Getty Images)

Apple had maintained a streak of topping revenue and earnings estimates for 13 consecutive quarters, dating back to December 2022. The last time the company missed expectations was for the holiday quarter of 2022, when overall sales dropped 5% year-over-year—the first such decline since 2019. At the time, Cook cited a strong dollar, production issues with iPhone 14 Pro and Pro Max in China, and a challenging macroeconomic environment as contributing factors.

What Will Apple Say About China?

Image: Apple CEO Tim Cook and singer Li Yuchun attend a special event marking Apple's 50th anniversary at the Apple Taikoo Li Chengdu store on March 18, 2026 in Chengdu, Sichuan Province of China. (Credit: VCG | Getty Images)

Apple's performance in Greater China has been strong this year, with sales growing by 33% in the first half. Cook had previously expressed his delight with this performance. Apple's success in China comes amidst a memory shortage that has driven up device prices across the industry, contributing to a 4.3% decline in smartphone shipments in the second quarter—the fifth consecutive quarterly drop, according to IDC. By not yet raising iPhone prices in China, Apple has gained market share, capturing 18% of total China market shipments in Q2 2026, according to Goldman Sachs, while competitors like Samsung, Xiaomi, Vivo, and Oppo have increased their prices.

Apple's Gross Margin in Focus, After Nearing 50%

Video: Apple shares slide as Mac and iPad hikes raise fears of higher iPhone prices (1:51)

Apple's gross margin was a key area of focus, as investors assessed how the company is managing the rising costs of memory and other device components—a situation Cook previously deemed "unsustainable." While Mac and iPad price hikes in late June will impact September quarter results, Apple's device gross margin in the prior quarter was 38.7%, down 200 basis points. The company had forecast a decline in gross margin for the June quarter, expecting 47.5% to 48.5%, with analysts anticipating around 48%.

Apple and Amazon Wrap Up Megacap Earnings

Image: Amazon CEO Andy Jassy walks to lunch during the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on July 9, 2025. (Credit: David Paul Morris | Bloomberg | Getty Images)

Alongside Apple, Amazon was scheduled to report earnings, concluding the megacap tech earnings season (with Nvidia's report still pending). The season has presented a mixed bag, with investors scrutinizing capital expenditure commentary and demanding accountability for converting expenses into revenue. Meta and Microsoft experienced contrasting market reactions, reflecting continued skepticism around Mark Zuckerberg's spending plans and appreciation for Microsoft's cloud growth, respectively. Wall Street is particularly keen on Amazon's cloud business performance.

Growth Expected to Slow from Here, Retreating to More Normal Levels

Looking ahead, Apple's growth rates are projected to decelerate significantly through the rest of this year and into 2027. Consensus expectations for fiscal fourth-quarter revenue expansion stand at approximately 12%, dropping into the single digits for most of the next year. These figures represent a return to more familiar growth patterns for investors, as Apple hadn't achieved double-digit revenue growth since 2021 before the December quarter. Apple typically provides revenue guidance during its earnings calls.

Cook and Ternus Make a Public Appearance

Image: John Ternus, Apple's Senior Vice President of Hardware Engineering, (L) and Tim Cook, CEO of Apple, attend the world premiere celebrating season four of the Apple TV beloved series “Ted Lasso” at Academy Museum of Motion Pictures on July 27, 2026 in Los Angeles, California. (Credit: Stewart Cook | Getty Images)

In a rare joint public appearance, Tim Cook and John Ternus attended the premiere of Apple TV's "Ted Lasso" Season 4 in Los Angeles. Apple TV is a key component of the company's services division, which analysts expected to report $31.36 billion in revenue for the June quarter. Apple's services have also seen price adjustments, with its music subscription increasing from $10.99 to $11.99 per month in July in the U.S.

Could the Memory Shortage Help Apple Gain Market Share?

Image: Apple CEO Tim Cook and Jalen Brunson, basketball player for the New York Knicks, during the first day of in-store sales of Apple's latest products at Apple's Fifth Avenue store in New York, Sept. 19, 2025. (Credit: Bloomberg | Bloomberg | Getty Images)

Despite the potential threat to its margins from rising memory, storage, and other component costs due to not yet raising iPhone prices in most markets, some analysts believe Apple could gain market share in a generally dismal smartphone market, potentially the softest since 2013. Goldman Sachs analysts, who maintain a buy rating on Apple stock, suggest that Apple's scale allows it to absorb price hits or negotiate large supply agreements, while most Android phone makers are forced to pass on costs, risking customer loss. Apple management often provides data on "switchers"—customers transitioning from Android to iPhone—during earnings calls.

Apple's Capital Expenditure-Light Strategy Is Paying Off in the Eyes of Investors

Video: Apple is rising because of everyone else's capex plans, says MoffettNathanson's Craig Moffett (4:25)

Apple's capital expenditure-light approach, particularly in AI infrastructure, is resonating with investors. The company announced earlier this year its strategy to license significant AI technology from Google and utilize its cloud services, contrasting sharply with peers who are spending over $100 billion in capex this year. Apple, by comparison, expects to spend just over $11 billion, with $3.4 billion in the June quarter. This strategy has contributed to Apple's stock climbing recently, even as other AI-focused names have faltered. Analysts at Baird commend Apple's industry-leading free cash flow, recommending a "buy" on the stock.