Apple results analysis: Net-net over the moon

Pretty soon, we aren’t going to have Tim Cook to kick around anymore. Or at least, when we kick him around, it’ll be a sort of executive chair kind of kicking. (Wait, I was told there would be no more kicking!)

Regardless of pending executive transitions, Apple released its corporate earnings for the second fiscal quarter of 2026, and Tim Cook got to bask in the sun — and dodge questions from analysts — for one of the last times.

The charts have all been generated, and Tim Cook hasn’t yet regenerated into John Ternus, so here’s a quick set of additional observations about what’s going on in the business of Apple.

A new definition of boring

Apple’s business has been very, very seasonal for a long time—certainly back to the introduction of the iPod, if not before. Apple sells a lot of stuff in the last three months of the year, not only because it’s the holiday season, but these days because it’s also new iPhone season.

Those holiday quarters are huge. They stand out on any chart you make. The other quarters, well, they’re the sag in the saddle. They’re important because you need 12 months to make a calendar, but they’ve never had the sizzle of the holiday quarter.

Which is why it’s so impressive that, for two successive “boring” quarters, Apple has generated more than $100 billion in revenue. In 2020, Apple’s “boring” quarters averaged $60.9 billion in revenue. That a company this large can still grow this much in five years is astounding. When I describe Apple as the world’s foremost machine that generates cash, I am not kidding.

Speaking of cash, back in 2018, Apple declared that its policy was to become “cash neutral over time,” because its cash flow had gotten so ridiculous that it was sitting on $163 billion in net cash. In practice, Apple attempted to spend its extra money largely through stock buybacks and shareholder dividends.

Eight years later and more than a trillion dollars of cash return later, things are changing, at least a little. “As we move ahead, we are no longer providing net cash neutral as a formal target, and we will independently evaluate cash and debt,” Apple CFO Kevan Parekh said on Thursday’s call.

Now, I’m sure there are a lot of complex financial reasons Apple has decided to back away from net cash neutral, and Parekh was quick to point out that Apple’s board had authorized $100 billion to be used in future stock buybacks. The company, he said, is still “very committed to returning excess cash to shareholders.”

The key concept here seems to be flexibility. It sure sounds to me like Apple wants the ability to, for example, stash a little extra cash away so that it’s capable of making big moves if it needs to. Maybe that’s capital expenditures involving AI stuff. Maybe it’s keeping enough cash ready to spring if there’s a company it feels like it can acquire, in whole or in part. (Apple’s cash flow is an enormous advantage should it come across a relevant company that’s in fiscal distress.)

I also have to wonder if the company might be considering larger investments to normalize its component supplies. Right now, RAM is at a premium, and Apple’s using every chip TSMC can manufacture for it. Maybe Apple wants the leeway to give billions of dollars to a partner to build a factory and pre-buy all the output of that factory for a certain number of years. Not cheap, but if you’ve got the cash, maybe a good longer-term investment.

We’ll see what happens. I just think it’s interesting that Apple went to the trouble of formally disengaging from its old monetary policy so it can get a little more room to maneuver. Usually, if you’re looking for that, it means you are thinking of maneuvering, right?

Memory costs are starting to affect Apple

Apple’s careful planning meant it could combat the rising cost of memory for a little while, but that time seems to be coming to an end. Here’s what Cook said Thursday:

In the December quarter, we really had a minimal impact due to memory, and you can kind of see that in the gross margin results. We said it would be a bit more in the March quarter, and we did see higher memory costs in the March quarter, and they were partially offset by benefits from carry-in inventory that we had. For the June quarter and what’s embedded in the guidance that Kevan went through earlier, we expect significantly higher memory costs. They are also partly offset by the benefit of carry-in inventory. And then, where we don’t give color beyond June, I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business. And we’ll continue to evaluate this, and as we’ve said before, we’ll look at a range of options.

What are those options? Cook said he didn’t really want to go into it, but we can all probably guess: Lowering margins and/or raising prices. Apple tends to go about this in very careful ways—base prices may stay the same, with the cost of higher-end configurations seeing price increases. Its huge product margins give it room to maneuver, but Apple’s not ever going to want to give away margin. That’s not how it’s wired. Bottom line: Some Apple products are going to become more expensive in the near future, but it may be more complicated (and less obvious) than you expect.

Can’t sell ’em if you can’t make ’em

While having more demand for your products than you can fulfill is a good problem to have, it’s still a problem. Ideally, every person who wants to buy an Apple product would have their credit cards immediately charged and their product shipped. Unfortunately, we live in a world that suddenly has some dramatic tech supply constraints, and it bit Apple in the second quarter.

Oh, it’s the memory thing again, you might be thinking. But no! Apple’s current supply constraints are actually at Taiwan Semiconductor (TSMC), which can’t make Apple’s key SoCs (Systems on Chips) fast enough to fulfill Apple’s demand. Apple uses TSMC’s most advanced nodes, and according to Cook, “we’re not at the point where we’re saying this is going to end anytime soon.” There’s no button to push to make the conveyor belt at TSMC run faster.

Who does Cook blame? Himself, more or less. “We just under-called the demand,” he said. This constraint is hitting the iPhone as well as the Mac, and especially the Mac mini and Mac Studio, due to increased demands due to Apple silicon being a pretty great platform for agentic AI applications.

The MacBook Neo was also constrained, which is interesting, since I’m not sure that’s a TSMC supply problem. But Apple rolled it into its description of all the other issues it’s having. “We were very bullish on the product before announcing it, but we undercalled the level of enthusiasm that would be with it,” Cook said.

Memory is going to hit Apple, yes. And this quarter was already a record. And yet… if Apple had correctly forecast demand and made sure TSMC was able to supply that demand, it would’ve sold more iPhones and Macs in the last quarter. As I said, as bad stories go, it’s got good roots—but it’s still not ideal.

Tariff Talk with Tim

During a complicated question from J.P. Morgan analyst Samik Chatterjee about product margins, Parekh unusually half-answered the question and then stopped and “turned it over to Tim” so that Cook could read an obviously prepared statement about tariffs, which included this bit:

In terms of applying for a refund of tariffs paid, we’re following the established processes, and we plan to reinvest any amount we receive back into U.S. innovation and advanced manufacturing. These would be new investments and would be in addition to our prior commitments in the U.S.

This is the sort of politics Cook will continue to be plying from the boardroom. Sure, Apple’s going to try to get its tariff money back. But it’s going to do so using the perfectly normal and established process, and if it does get billions back from the U.S. government, it double-promises to reinvest that money in the United States, above and beyond its already stated commitments. Trump Administration, take note.

Remember this moment with Bullish Tim

I’m going to miss Cook on these quarterly calls. He pointed out that Thursday’s call was his 89th, which, yes, predates his era as CEO. (Steve Jobs only attended the calls occasionally, leaving Cook to preside over them even as Chief Operating Officer.)

Anyway, one of Cook’s signature earnings call moves is being bullish on emerging markets. So a tip o’ the cap to Wells Fargo analyst Aaron Rakers, who used his allotted two questions to ask Cook to play the hits—namely, to ask how he felt about Apple’s business in China and India.

After a few years in the doldrums, Apple’s last two quarters in China have been solid. Cook was quick to point out that the iPhone was the top-selling phone in urban China, the Mac mini was the top desktop in China, and the MacBook Air was the top laptop.

In terms of India, Cook got to point out (as he loves to do) that even with all of Apple’s growth there, it’s still got enormous growth potential:

It’s the second-largest smartphone market in the world and the third-largest PC market, and despite doing extremely well there for quite some time, we still have a modest share. And so I think that really speaks to the opportunity that we have…. Net-net, I’m over the moon excited about India.

I’m going to miss hearing from Tim Cook, the man who can generate the requisite enthusiasm about international business to use a phrase like “net-net over the moon.”

Some advice for John Ternus

During Cook’s introductory remarks on the earnings call, he allowed future CEO John Ternus to drop in and read a 250-word prepared statement. It was a necessary mutual-admiration society where Cook praised Ternus (“a brilliant engineer, a deep thinker, a person of remarkable character, and a born leader”), followed by Ternus immediately praising Cook (“one of the greatest business leaders of all time”). The whole point of this is to send the message to Wall Street that Apple’s got this and nobody needs to be worried.

What wasn’t quite as necessary was the door opened by Evercore analyst Amit Daryanani, who asked Cook if he could share any advice he had for John Ternus, given that Steve Jobs famously told Cook not to ask what he would do, but focus on doing what was right.

Here was Cook’s response:

I think Steve’s advice to me lifted a huge burden, and so that advice did well for me over the 15 years. For John… what I’ve told him is that one of the most important decisions he’ll make is where to spend his time. And I would spend it where the greatest benefit to the company and the users are, and never forget the north star for the company. We’re about making the best products in the world that really enrich other people’s lives, and if you keep focusing on that and make your decisions around that, it will produce a great business, and we’ll be able to build more products and do it all over again.

Now don’t get all misty on us, Tim. There’s still your 90th analyst call to come, sometime in late July. I hope someone remembers to bake a cake for that one.