By Jason Snell
He admit it!: Notes from another record Apple quarter
Another fiscal year, another load of record quarters. Apple wrapped fiscal 2026 on Monday with a record fourth quarter and some banner sales for the iPhone and Mac. The iPad and wearables? Uh, look over there! It’s a tough compare!
Here are some quick takes on Apple’s quarter and what the company said on its quarterly earnings call.
Things have never been better
If your name is Mac or iPhone, things are good. And the iPhone doing well means Apple as a whole is doing well, since it represented half of Apple’s total revenue this quarter.
This quarter closed out a remarkable year for the iPhone, putting the iPhone 17 cycle in the books with four straight quarters of 20-ish percent year-over-year growth. Apple CFO Kevan Parekh said it was the best iPhone year in every single Apple geographic segment.
Meanwhile, the Mac—a 42-year-old product!—had its best year ever. And not just revenue (which we could tell from reading Apple’s disclosures), but in total units too, apparently. “We have never sold more Macs in a fiscal year than we did this time,” Apple CEO John Ternus said. Okay then! Apple highlighted MacBook Pro and MacBook Neo performance as the main drivers, which is an interesting you-go-high-I’ll-go-low tag team. Apple says the Mac is doing really well in emerging markets, and it’s also taking market share.
Now just a reminder: Apple raised a bunch of prices recently. Its revenue went up, but some portion of that was because the prices per unit went up, too. Since we’re largely left to guess about unit sales, it’s impossible to judge how much of Apple’s growth was boosted by the growth of the price tags on its products.
Why can’t you be more like your brother?
Into every life a little rain must fall. So it is for the iPad, down 10% versus the year-ago quarter, and especially for the Wearables, Home, and Accessories category, which took an 8% header this quarter. If you’re wondering why Apple is getting into the home in a big way, look no further than the lackluster performance of this category.
I have to admire Parekh continuing to work hard to blame the performance of these categories on a “tough compare” with last year. On Monday Parekh blamed the A16 base iPad for that tough iPad compare, and the Apple Watch SE 3 and AirPods Pro 3 for the tough Wearables/Home/Accessories compare. I appreciate wanting to protect the family, Kevan, but these two are never going to get their act together unless you admit they aren’t carrying their own weight right now.
Services are breaking out all over
The golden child of Apple’s growth, Services, was up almost 10%, but it’s always about expectations, isn’t it? That 10% growth rate was the lowest it’s been in three years. It sounds like foreign-exchange headwinds were a major reason for the drag on Services revenue.
In the earnings call, it was interesting to hear both Ternus and Parekh call out iCloud+, which is slowly morphing from a cloud storage plan to a more holistic Apple cloud-services membership. In 100 countries, iCloud+ now includes Apple TV and Apple Arcade, and Apple is using iCloud+ status to determine if users get more daily usage of cloud-based Apple Intelligence features.
Obviously, Apple sees iCloud+ growth as a new place to drive Services revenue. (Parekh also cited AppleCare One Family as a place where Apple is growing the business.) I think the analysts were happy to hear that Apple has a plan to use AI to drive services revenue.
And in a nerdy aside, ongoing AI costs are now being considered part of the ongoing value of an iPhone. Parekh said: “As we continue to roll out Siri AI to more customers, the associated cloud costs will be recognized through services cost of sales and consistent with how we’ve always accounted for Maps, Siri and iCloud for the devices we sell that include these bundled services, we defer a portion of the revenue and recognize it over the life of the device. So our hardware deferrals as of the December quarter will reflect the addition of Siri AI. Both of these items will have an impact to the gross margin.”
Accounting facts!
Apple’s margins are taking a hit
Look, Apple’s got some of the best margins going. The company hit 50% in margin last quarter. But the global memory crisis has been cruel to Apple, and margins tumbled 2.1% sequentially. What’s worse, that number was a full percentage point higher than it would have been had tariff refunds not been factored in. And next quarter, there won’t be a tariff refund.
As a result, as pointed out by Evercore’s Amit Daryanani on the call, Apple’s gross margins will probably fall even more next quarter. Parekh admitted that the company is forecasting gross margins between 45% and 46%, which means another big drop, all due to memory prices.
This is the reality of Apple’s business right now: It has raised prices across the board, and it’s eating margin. Both are happening.
Good news, though! This storm will blow over, right?
“For the December quarter, we expect even higher memory costs,” Ternus said. “Looking beyond the December quarter, we see the pricing for memory purchases continuing to increase.” Ternus said Apple has actually increased its purchase obligations for manufacturing by $33 billion in the last quarter. That’s a lot of bill inflation, and it’s the memory crisis driving it.
An improving supply story
Apple’s still not able to make enough products to fulfill demand, due to “less flexibility in the supply chain,” according to COO Sabih Khan. But there’s some good news on that front, at least: Though memory is still a problem, the new 2nm processor nodes at TSMC being used to make the M6 and A20 Pro processors in new iPhones and Macs have come online, meaning that there’s less pressure on the older processes, which means constraints are easing.
But Mac and iPad will probably be constrained throughout the holiday quarter, Khan said, due to… yep: memory.
One analyst asked if Apple had any idea if raising prices was having any impact on sales. And the thing is, Parekh said, Apple doesn’t really know—because it’s still trying to meet demand, which makes it impossible to measure a potential suppression of sales.
“It’s early to really read price elasticity at this point in time,” Parekh said. “The iPad and Mac were constrained since we had made those adjustments, and again, we just recently just adjusted the price on iPhone, so it’s really early to really assess any elasticity impact at this stage.”
Anyway, this long-distance dedication goes out to all of Apple’s suppliers out there. Despite some stories recently suggesting that at least some suppliers hate Apple’s guts, COO Sabih Khan—presumably the person who is responsible for relationships—wants them to know that Apple loves them.
“We have worked with many of our suppliers for decades, and we deeply value their partnership over the years,” Khan said, almost unprompted, taking the floor from Parekh. “We know our products would simply not be possible without them, and we look forward to continuing our work together.”
What’s next?
Who needs to read charts created in late January 2027 when I can give you the news today? Apple fully expects that next quarter, which is always Apple’s best of the year, will break all the all-time revenue records. Parekh estimated it’ll be between 7% and 10% higher than the previous holiday quarter, which means $153B to $158B. Apple just broke the $100B quarter barrier during the holiday quarter of fiscal 2020, and yet here we are.
This was John
John Ternus’s debut as CEO on the call was hardly earth-shaking. He basically played the Tim Cook role, though he brought in Sabih Khan to answer some of the operations questions, which I think was a good move. Khan presumably has the operations side down cold, and so why not let him answer those questions?
Keep in mind, they are all almost certainly reading from pre-written answers that are anticipating potential questions. Nobody wants to say something wacky on a financial earnings call. It may make the government regulators cranky.
Speaking of which, it’s almost a rite of passage: Apple execs get asked questions about future products. You know they’re not going to answer. I know they’re not going to answer. But someone must ask! And that’s fine.
Still, John Ternus knows not to take the bait. And this time, he told it like it is:
“These MacBook Pros are better in every way than the ones that came before them, and we’re really proud of that,” he said, responding to a question about if the touch-based MacBook Pros might augur some sort of iPad-MacBook mash-up.
“And so we don’t have any fundamentally different changes that we’re planning right now,” he said. “Nor would we talk about it anyway.”
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