Dive Brief:
- Apple contended with supply constraints and rising memory prices in iPhone, iPad and Mac manufacturing in Q4 FY2026, executives said on a Nov. 2 earnings call.
- The computer maker partially offset higher memory costs by using carry-in inventory from the previous quarter, saving on non-memory components and raising product prices, CEO John Ternus told investors.
- To improve its memory supply, Apple increased its "manufacturing purchase obligations" by $33 billion from Q3 to Q4, Ternus said. "What we're seeing with memory pricing right now is unprecedented."
Dive Insight:
Apple executives did not provide further details on the increased purchase obligations and whether they reflected a change in the company's supplier relationships. However, Apple is likely signing long-term agreements to avoid suffering memory shortages during manufacturing, Phil Solis, a research director for IDC, said in an email to Supply Chain Dive. Shorter-term contracts were signed previously when supply was plentiful.
"Every company buying memory has had to change how they buy memory if they want stable pricing and to guarantee supply," Solis said. "Memory scarcity has given memory suppliers the upper hand for now."
Heavy investment in artificial intelligence applications and the data centers that run them has driven up memory prices by as much as 400% in the last two years, placing immense pressure on consumer electronics companies.
At Apple, the higher memory costs drove a roughly 1-point change in gross margin between Q3 and Q4, SVP and CFO Kevan Parekh told analysts. Gross margins fell 2.2 percentage points from 50.1% to 47.9% between the quarters, and Parekh said the forecast for the current quarter is lower, at between 45% and 46%, primarily due to higher memory costs.
Apple expects carry-in inventory from Q4 to the current quarter will help mitigate some of the higher memory costs, Ternus said. However, that strategy has its limits.
"And looking beyond the December quarter, we see the pricing for memory purchases continuing to increase," Ternus said. "As we said before, we do believe we'll see a decreasing benefit from the carry-in inventory on memory over time."
Apple expects relief in supply constraints for systems on a chip — processors that integrate multiple computing functions — as the company transitions to a more advanced 2-nanometer manufacturing process, SVP and COO Sabih Khan said.
AI computer servers today run on the older 3-nm technology, providing companies like Apple at least a temporary break, Solis said.
"The AI server market is creating demand for processors and accelerators that are eating into 3nm capacity," Solis said. "By moving to 2nm chips, smartphone SoC vendors are seeing less scarcity for now - at least until server chips move to 2nm."
