Bank of America: Apple's staggered launches and rising memory prices could weigh on fiscal 2027 revenue and gross margin

For which quarters are BofA's expectations below the market's?

Ahead of the earnings release, BofA expected Apple to report fiscal 2026 fourth-quarter revenue, for the quarter ending September 2026, of approximately 113 billion dollars and earnings per share of 1.97 dollars, slightly below market consensus of 114 billion dollars and 1.99 dollars, respectively. Its revenue forecast falls within the company's guidance for year-over-year growth of 9% to 11%.
The gap widens in the quarter ending December 2026: BofA expects revenue of 135.7 billion dollars, down 5.6% year over year, compared with market consensus of 153 billion dollars; it forecasts earnings per share of 2.59 dollars, below the consensus of 2.93 dollars.
BofA cut its fiscal 2027 iPhone unit sales forecast by 9 million units to 247 million units, below market expectations of 260 million units. It lowered its full-year revenue forecast from 535.3 billion dollars to 526 billion dollars and its earnings-per-share forecast from 9.46 dollars to 9.12 dollars.

The Pro, Pro Max and foldable Duo launched in September, and BofA expects the base iPhone 18 and next-generation Air to launch at the end of the first quarter of 2027. The bank believes some base-model buyers will postpone purchases, hurting sales in the quarter ending December, with demand potentially shifting to subsequent quarters.
BofA expects iPhone revenue in the quarter ending December 2026 to rise 24% quarter over quarter, well below the average increase of 78% for the same period from 2020 through 2025. The bank therefore believes market expectations for total revenue in the quarter ending December are too high and those for the quarter ending June 2027 are too low.
Postponed purchases may not all translate into sales later: BofA also assumes that the absence of the base model will result in some lost demand. The older iPhone 17 can partially fill the gap, but its price for the same configuration rose by 100 dollars instead of falling by the customary 100 dollars.

BofA estimates that rising memory prices alone affect iPhone gross margin by about 9 percentage points. Product price increases, an improved sales mix and cost measures can offset part of that, leaving a net impact of about 5 percentage points, equivalent to a decline of about 2.5 percentage points in Apple's overall gross margin.
In the bank's scenario, combined DRAM and NAND costs per iPhone rise from 55 dollars to 245 dollars. Higher selling prices, in-house modems and concessions from the supply chain are among the offsets.
Apple's gross margin guidance for the quarter ending September is 47% to 48%, including a benefit of about 1 percentage point from tariff refunds. Using 46.5%, excluding the refunds, as its baseline, BofA estimates that overall gross margin will fall to 43.6% to 44.6% by the quarter ending March 2027, below the market consensus of 47.7% at the time. Remaining tariff refunds and memory inventories will affect the actual result.

BofA expects services revenue in the quarter ending September 2026 to grow approximately 10% year over year, down from 12% in the quarter ending June. App Store revenue growth slowed from 3.8% in the prior quarter to 1.8%; lower-than-expected Google search revenue could also weigh on Apple's licensing revenue.
BofA expects overall gross margin to fall to 44.2% in the quarter ending June 2027 and then begin to recover. Despite lowering its near-term forecasts, the bank maintained its Buy rating and 370-dollar price target, citing a multiyear device upgrade cycle, services growth and margin opportunities from in-house chips.
The price target is based on a price-to-earnings multiple of 35 times estimated calendar 2028 earnings per share of 10.79 dollars. This valuation depends on BofA's assessment of AI opportunities, the upgrade cycle and an improving services mix.