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Apple forecasts slower growth as AI build-out strains tech supply chains

CEO Tim Cook says impact of memory prices is set to worsen as he steps down

Apple logo displayed at an Apple store in Paris.Apple is widely expected to raise iPhone prices later in the year © Reuters

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Michael Acton in San Francisco

Published7 hours ago

Updated19:17

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Apple forecast weaker sales growth and a hit to margins in the coming months from strains on tech supply chains caused by the AI infrastructure building boom, as Tim Cook prepares to step down as chief executive.

Kevan Parekh, chief financial officer, on Thursday said Apple expected 9-11 per cent revenue growth in the three months to the end of September, undershooting Wall Street forecasts of 12 per cent.

The stock fell more than 6 per cent after hours as Cook warned investors that the impact from “less flexibility in the supply chain” would “increase significantly”.

Apple has until now defied a broad contraction in the smartphone market caused by big increases in memory chip and other component prices, as consumer electronics companies are outbid by Big Tech groups racing to build AI data centres.

Thursday’s earnings report confirmed investor fears that Apple will be hit by an industry-wide memory chip shortage, which the company had already blamed for a rare 20 per cent price increase on MacBooks and iPads in June — and gave little insight into how long the drought could last.

Hardware chief John Ternus, who will take over as chief executive in September, will now be under greater pressure to convince investors he can manage the vast supply chain that Cook was instrumental in building at a time of acute pressure.

Apple recently reclaimed its title as the world’s most valuable company and briefly touched $5tn in market value as the hardware giant’s relatively small investments in AI made it a haven for investors among Big Tech stocks that are otherwise heavily exposed to the AI trade.

Cook on Thursday said supply chain constraints in the three months to June were mainly due to higher-than-expected demand for the iPhone and Mac computers, with manufacturing capacity for Apple’s chips unable to keep up.

But memory chip prices were now starting to bite, Cook said, and “could drive an increasing impact on our business” into the end of the year.

Cook reiterated the difficulty of relying on three suppliers of high-end DRam memory — Micron, SK Hynix and Samsung — and said an additional supplier would help.

Apple has been lobbying the Trump administration for assurances that it will be able to use China’s CXMT in the coming years, facing backlash from China hawks in Washington.

The iPhone maker reported an otherwise strong performance in the three months to June. iPhone sales of $54.3bn, up nearly 22 per cent year on year, were better than the $53.1bn Wall Street expected.

Apple said its revenue was $109.4bn in the three months to the end of June, up 16 per cent year on year and just above analyst expectations of $108bn compiled by Visible Alpha.

Line chart of Share price, $ showing Apple has rallied more than 20% since January

Revenue from China and Apple’s services business both disappointed analysts’ forecasts, although Chinese sales continued to rebound from a period of weakness with 22 per cent growth.

Apple is widely expected to raise iPhone prices later in the year and to stagger the launch of its base model iPhone 18 and the new iPhone Air into next year, taking some pressure off its suppliers.

To smooth over price increases, Apple has embraced new payment options for consumers, announcing a deal with buy-now, pay-later company Klarna this week that allows US customers to lease an iPhone starting at $17.99 per month.

In the short term, holding iPhone prices has helped Apple grow its market share to 20 per cent in the quarter, up from 17 per cent last year. Global smartphone shipments declined 11 per cent during the quarter.

Bernstein analysts this week wrote Apple “significantly outperformed the broader market” as the only major smartphone maker to avoid price increases.

Memory chip prices have risen about 300 per cent in the second quarter of the year alone, according to the International Data Corporation, as demand from AI data centre builders hoovered up the supply.

Gross margin for the quarter to June was 50 per cent, incorporating a 2 percentage point boost from refunds on President Donald Trump’s emergency tariffs levied last year that have since been struck down by the US Supreme Court.

But it forecast margins would slip to a midpoint of 46.5 per cent in the current quarter if an expected boost from tariff refunds is not included.

MacBook sales also beat estimates at $10.4bn versus the $8.8bn expected, up strongly year on year. Net income was $29.8bn, above estimates of $27.4bn.

Apple reported just $6.8bn in capital spending in the nine months to the end of June, a fraction of the $44.9bn Google spent in its June quarter alone.

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