Apple Q3 Beats, Stock Drops 7.6% as Memory Costs Loom
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- Apple reported Q3 EPS of $2.02 on revenue of $109.4 billion, beating estimates of $1.89 EPS and $108.8 billion — but shares fell more than 7.6% in premarket trading on Friday as Services and Greater China missed.
- iPhone revenue hit $54.2 billion versus expectations of $53.5 billion, up from $44.5 billion in the same quarter last year.
- Services revenue came in at $30.7 billion, missing the $31.3 billion analysts expected; Greater China revenue was $18.8 billion, shy of the $19.5 billion estimate.
- Jefferies analyst Edison Lee warned AI-driven memory cost increases could cut iPhone gross margins from 38% to 34.5% if Apple raises prices on next-generation iPhones.
- KeyBank Capital Markets' Brandon Nispel said raising iPhone prices will slow unit growth, which in turn slows Services growth — framing the pricing dilemma as a bigger threat than margins alone.
- Apple has already raised Mac and iPad prices due to the global AI memory crunch and is widely expected to hike iPhone prices at its September showcase.
- Tim Cook's tenure as CEO ends September 1, when John Ternus takes over, making Thursday's report Cook's final earnings.
Why it matters: The market punished Apple with a 7.6% premarket drop despite a headline beat, revealing that AI memory cost pressure — potentially cutting iPhone margins from 38% to 34.5% per Jefferies — and weakening China/Services now matter more than the quarterly print. Incoming CEO John Ternus inherits both the pricing squeeze and a September 1 leadership transition.
