Apple (AAPL) Q1 FY26 earnings call: guidance and Q&A

How will memory inflation impact Apple's gross margins, and what is the comfort level in securing components for shipments given supply constraints?

iPhone demand exceeded expectations, leading to lean channel inventory and current supply constraints for advanced nodes (3-nanometer). Memory had minimal impact on Q1 gross margin but is expected to have a bit more impact on Q2, which is comprehended in the guidance. Memory pricing is increasing significantly, and Apple is exploring a range of options to address it.

“From a memory point of view, to answer your question, memory had a minimal impact on the Q1, so the December quarter gross margin. We do expect it to be a bit more of an impact to the Q2 gross margin and that was comprehended in the outlook of 48% to 49% that Kevan gave earlier.”

asked by Amit Daryanani · answered by Timothy Cook

What is driving the strong growth in Greater China, and how sustainable is it?

Greater China revenue was up 38% YoY, driven by record iPhone sales and strong customer enthusiasm for the iPhone 17 lineup. The installed base reached an all-time high, with records for upgraders and strong double-digit growth in switchers. Non-iPhone products also saw strong performance, with many new customers. The strength is primarily product-driven.

“Greater China was up 38% year-on-year. It was driven by iPhone where we set an all-time revenue record. So it was the best iPhone quarter in history in Greater China.”

asked by Amit Daryanani · answered by Timothy Cook

How does Apple plan to monetize its AI initiatives, and what is the timeline for realizing ROI, given increased OpEx for R&D?

Apple is integrating AI across its operating system in a personal and private way, which creates value and opens up opportunities across products and services. The company is happy with the collaboration with Google. No specific monetization timeline or revenue upside was provided.

“Well, let me just say that we're bringing intelligence to more of what people love, and we're integrating it across the operating system in personal and private way. And I think that by doing so, it creates great value and that opens up a range of opportunities across our products and services.”

asked by Erik Woodring · answered by Timothy Cook

How did Apple decide on the Google partnership for AI and Siri, and is there a revenue-sharing opportunity similar to search?

Apple chose Google's AI technology for its foundation models due to its capability, believing it will unlock new experiences and innovation while maintaining privacy standards. The company is not releasing the financial details of the arrangement with Google.

“In terms of the arrangement with Google, we're not releasing the details of that.”

asked by Benjamin Reitzes · answered by Timothy Cook

How is Apple able to guide for 48-49% gross margin despite rising memory prices, and what are the key drivers?

Q1 gross margin was 48.2%, driven by favorable product mix and leverage from the strong iPhone cycle. Services also contributed with double-digit growth. The Q2 guidance of 48-49% reflects continued favorable mix dynamics and services contribution, partially offset by seasonal loss of leverage and the impact of memory prices.

“I think given the strong iPhone cycle we're seeing, that was, I would say, probably a higher favorability than you might have seen in maybe other cycles.”

asked by Benjamin Reitzes · answered by Kevan Parekh

How does Apple view overall smartphone market demand given rising memory prices, and what options are being considered to manage memory costs?

Apple believes it gained market share in the December quarter, as its growth outpaced the overall market. The company is exploring a range of options to deal with increasing memory pricing, but did not provide specifics on long-term agreements versus spot purchases.

“In terms of smartphone demand, we believe that based on the information that we've got is we gained share in the December quarter. Obviously, the market wasn't growing at 23%.”

asked by David Vogt · answered by Timothy Cook

Third-party data suggests App Store growth deceleration despite Apple's strong services growth. Can this be confirmed, and what are the drivers/remedies?

Apple reiterated a quarterly record for the App Store in the December quarter. The company does not provide specific details on individual services categories but highlighted broad-based growth across all categories and geographies, including all-time records in advertising, music, payment services, and cloud services.

“Look, I think we want to reiterate the fact that during the December quarter, we had a quarterly record on the App Store. As you know, we don't provide specific color on how the individual services categories have done.”

asked by Wamsi Mohan · answered by Kevan Parekh

How does Apple's foundation model functionality differ from third-party models, and how does it evolve with partnerships like Google's?

The Google partnership should be viewed as a collaboration, particularly for powering the personalized version of Siri. Apple will also continue independent development. The focus is on leveraging both internal and partner capabilities.

“Yes. Krish, you should think of it as a collaboration. And we'll obviously independently continue to do some of our own stuff. But you should think of what is going to power the personalized version of Siri is the collaboration with Google.”

asked by Sreekrishnan Sankarnarayanan · answered by Timothy Cook

Are Apple's internal silicon capabilities a lever for gross margin improvement, and what are the future opportunities?

Apple Silicon has been a game-changer and a major competitive advantage, providing differentiation and control over the product roadmap. Investments in core technologies like silicon and modems do offer opportunities for cost savings and positively impact gross margin.

“And certainly, while those do provide opportunities for cost savings and can be reflected in margins, they also importantly provide the differentiation that's really important for our products as well and give us more control of our road map.”

asked by Aaron Rakers · answered by Kevan Parekh