Bernstein: Apple’s strong revenue guidance, but memory costs and slowing services growth weigh on earnings forecasts

What stood out in the results and next-quarter guidance?

Apple’s fiscal 2026 fourth-quarter revenue was 114.5 billion dollars, up 12% year over year and 1.6% and 0.9% above Bernstein’s forecast and market consensus, respectively. Diluted earnings per share were 2.10 dollars, up 14% year over year and approximately 6% and 5% above the two estimates, respectively.
iPhone revenue was 57.6 billion dollars, up 17% year over year, while Mac revenue rose 24% to 10.8 billion dollars. Greater China revenue grew 21%*, supported by a record number of iPhone upgraders.
Apple guided for fiscal 2027 first-quarter revenue, the quarter ending in December, to grow 7%–10% year over year, above Bernstein’s previous forecast of 4.3% and market consensus of 6.1%. However, adjusted free cash flow last quarter was 25.859 billion dollars, 19.2% below consensus.

Bernstein estimates that total iPhone unit sales fell 2% year over year in the fourth quarter of fiscal 2026. Excluding the base models in both periods, sales of the remaining models rose approximately 6% and revenue rose approximately 27%, with the latter driven mainly by changes in pricing and product mix.
Because no new base model was launched at the same time in this cycle, Bernstein expects total iPhone unit sales to fall 15.5% year over year in the December quarter. On a comparable basis excluding base models, it expects unit sales to grow approximately 4% and revenue to rise 30%–35%, driven by pricing, a higher share of premium models and Duo’s contribution.
This estimate assumes that the 18 Pro series continues its September quarter trend and that older models gradually decline. Duo is currently supply constrained, and management has not yet given a timeline for supply and demand to return to balance.

Apple’s overall gross-margin guidance for the December quarter is 45%–46%, below Bernstein’s earlier forecast of 46.2%, which was already below consensus. Management expects higher memory prices to be the main reason for the sequential decline in gross margin; as the benefit of lower-cost inventory fades, memory prices will continue to rise after December.
Services are also slowing: Apple expects services revenue to grow 8%–9% year over year in the December quarter, below 10% in the September quarter and market expectations of approximately 12%. Management attributed the slowdown mainly to third-party licensing revenue and an additional foreign-exchange headwind; App Store revenue in September was already roughly flat.
Bernstein believes the current guidance is also temporarily supported by a high share of premium iPhones and low-cost memory inventory. As costs continue to rise and the lower-priced iPhone 18e, expected in the spring, changes the product mix, the firm expects iPhone gross margin to fall from 40.5% in the first quarter of fiscal 2027 to 39% in the second half of the fiscal year.

Strong guidance and analysis of iPhone pricing prompted Bernstein to raise its revenue forecasts by approximately 2%, but lower gross margins and higher research and development expenses offset the revenue growth. The firm cut its fiscal 2027 and 2028 earnings-per-share forecasts from 9.90 dollars and 11.26 dollars to 9.78 dollars and 11.13 dollars, respectively.
Bernstein maintained its Outperform rating and raised its price target from 370 dollars to 380 dollars, based on a price-to-earnings multiple of 34 times its fiscal 2028 earnings-per-share forecast, up from 33 times previously. The firm is positive on Apple’s long-term position at the intersection of hardware, software and AI, while believing the AI opportunity will take longer to play out.