How did the newly reported fiscal quarter perform?

  • Apple’s revenue for the fourth quarter of fiscal 2026 was 114.5 billion dollars, up 12% year over year. That exceeded the company’s previous growth guidance of 9%–11% and was 1.6% above Bernstein’s estimate and 0.9% above market consensus.
  • iPhone revenue grew 17% year over year, slightly above the company’s previous outlook for growth in the mid-teens; services revenue grew 10%, affected by an additional currency headwind of approximately 2.5 percentage points. Excluding currency effects, services revenue growth was approximately 12.5%, roughly in line with 12% in the prior fiscal quarter.
  • Gross margin for the quarter was 47.9%, at the upper end of the company’s 47%–48% guidance; diluted earnings per share were 2.10 dollars, 5% above market consensus. Adjusted free cash flow, however, was 25.859 billion dollars, 19.2% below market consensus.

How do revenue and gross margin guidance for the December quarter compare?

  • Apple guided for revenue growth of 7%–10% year over year in the December quarter, including services revenue growth of 8%–9%; the company expects supply constraints to persist.
  • Gross margin guidance for the same period was 45%–46%, below Bernstein’s previous estimate of 46.2%, which was already below the market, and below market consensus of 46.7%. Compared with 47.9% in the newly reported quarter, the guidance range implies a decline in gross margin.

Why can’t the premium product mix overcome cost pressures?

  • Management identified rising memory costs as the main pressure on gross margin. Bernstein noted that memory prices continue to rise beyond the December quarter, while the benefit of lower-cost inventory will gradually diminish, and therefore expects near-term gross margin pressure to persist.
  • A higher share of premium iPhones helps support gross margin, but rising costs have offset that benefit. Bernstein estimates that, excluding the benefit of the premium mix and assuming availability of the base iPhone 18, the company’s gross margin for the December quarter could be approximately 30 basis points below current guidance.

How does Bernstein view near-term pressure and long-term value?

  • Bernstein remains cautious about Apple’s near-term performance because memory costs are rising faster, but maintains its Outperform rating and 370-dollar price target.
  • The firm’s long-term view is based on Apple’s combination of hardware, software and AI, and its premium user base of more than 2.5 billion active devices; it believes Apple could become a gateway for consumers to use on-device intelligence.
  • The main risks to the long-term view include Apple falling behind in generative AI, declining importance of smartphones, and disruption to its supply, demand and ecosystem monetization from US–China tensions or regulatory challenges.