Apple Faces Margin Headwinds Despite Positive Rating

Key Moments

Bernstein reaffirmed its Outperform rating and $370 price target on Apple while cautioning about downside risk to December-quarter margins and EPS.
The firm lowered its fiscal first-quarter EPS estimate to $2.87 from $3.00, now sitting 2% below the $2.92 consensus.
Rising DRAM and NAND costs are estimated to account for about 90% of a $168 year-over-year cost increase for the 256GB iPhone 18 Pro Max.

Bernstein Maintains Bullish Stance but Warns on Near-Term Earnings

Investing.com – Bernstein reiterated its Outperform rating and $370 price target on Apple in a note on Friday, while cautioning that higher memory component costs could weigh on the iPhone maker’s gross margin and earnings in the December quarter.

“Our detailed BOM and mix analysis points to downside risk to Apple’s December-quarter gross margin and EPS, although stronger international pricing provides a partial offset,” analyst Mark Newman wrote. BOM is the bill of materials.

EPS and Margin Forecasts Trimmed

Bernstein reduced its fiscal first-quarter EPS projection to $2.87 from $3.00. The updated forecast stands 2% below the consensus estimate of $2.92.

The firm now anticipates an iPhone gross margin of 40.4%, which is 390 basis points under consensus. Bernstein’s estimate for Apple’s total gross margin is 46.2%, coming in 50 basis points below the consensus view.

Metric	Bernstein Estimate	Consensus	Difference
Fiscal Q1 EPS	$2.87	$2.92	2% below
iPhone Gross Margin	40.4%	Consensus – 390 bps	390 bps below
Total Gross Margin	46.2%	Consensus – 50 bps	50 bps below

Regional Pricing and Margin Sensitivity

Bernstein indicated that, based on U.S. pricing alone, its model would produce even weaker profitability metrics, with iPhone gross margin at 39.6% and overall Apple gross margin at 45.8%.

The firm noted that larger selling price increases in markets outside the U.S. help mitigate some of the cost pressure. Bernstein estimates that the global average iPhone price increase is about 1.3 percentage points higher than in the U.S.

Memory Costs Drive Bill-of-Materials Inflation

“The primary source of margin pressure is sharply higher memory costs,” Newman wrote.

He stated that DRAM and NAND memory represent about 90% of the estimated $168 year-over-year cost increase for the 256GB iPhone 18 Pro Max, highlighting these components as the major factor behind the margin headwinds identified in the firm’s bill-of-materials analysis.

Product Mix: High-End Skew, but Limited Offset

Bernstein expects that higher-end iPhone models will account for 70% of unit volumes, which it views as a partial support to margins. However, the firm pointed out that this benefit is constrained because demand is centered on the 256GB storage variant, which it characterizes as a lower-margin configuration.