Apple Faces Rising Memory Costs as Inventory Protection Begins to Fade

Apple expects memory costs to increase again during its September quarter, adding further pressure to product margins as the global supply shortage continues.

Chief executive Tim Cook described current memory pricing as a rare and severe market disruption. The company has partly protected itself by building a much larger inventory of components, but that financial buffer is expected to provide less help after September.

Apple reported inventories worth $11.09 billion at the end of its June quarter. That was up 87 percent from a year earlier and nearly double the amount recorded at the end of its previous fiscal year.

Over nine months, the company spent about $5.46 billion in cash to increase its inventory position. Apple has historically maintained a lean supply chain, so the scale of this expansion reflects concern about future availability and pricing.

Memory Costs Caused Apple’s Margin Decline

Apple’s adjusted gross margin fell from 49.3 percent in the March quarter to 48.1 percent in June after removing the effect of tariff refunds.

Chief financial officer Kevan Parekh said higher memory costs accounted for more than the entire 1.2 percentage point decline. Other parts of the business helped offset some of that pressure, including stronger product revenue, price changes for Mac and iPad models, tariff refunds, and components purchased earlier at lower prices.

Apple expects its reported gross margin to fall to between 47 percent and 48 percent in the September quarter. After accounting for an estimated one percentage point benefit from tariff refunds, the adjusted midpoint would be around 46.5 percent.

Apple’s existing inventory should continue to reduce the immediate effect of higher component prices during the September quarter. However, Parekh warned that this benefit will become smaller afterward.

Cook also said market prices continue to rise beyond September, meaning the financial effect could become more significant in later quarters.

Apple Is Considering More Supply Options

The memory market is concentrated around a small group of major suppliers. Cook said greater competition could improve supply availability, although he was less certain about whether it would reduce prices.

Apple is evaluating several options to improve sourcing flexibility. These may include testing components from additional manufacturers, particularly for products sold in China.

The company did not confirm whether it plans to sign long term purchasing agreements with fixed or prearranged prices. Such agreements could improve supply stability, but they could also expose Apple to unfavorable terms if market prices later decline.

Industry forecasts suggest conventional DRAM contract prices could rise by another 13 percent to 18 percent during the third quarter. At the same time, major memory manufacturers are reporting strong profitability as demand from artificial intelligence infrastructure consumes more production capacity.

Chip Supply Is Creating a Separate Constraint

Memory pricing is not Apple’s only supply concern. The company also expects limited availability of advanced semiconductor manufacturing capacity to affect iPhone, Mac, and iPad shipments during the September quarter.

Cook said demand for iPhone and Mac products was stronger than Apple had planned. Limited access to advanced manufacturing nodes used for Apple’s processors may prevent the company from fully meeting that demand.

Apple expects revenue to grow between 9 percent and 11 percent year over year during the September quarter. That would be slower than the 16 percent growth recorded in the previous period.

The company’s large inventory position has provided temporary protection from rapidly rising memory prices. However, that protection cannot continue indefinitely. Apple may eventually need to accept lower margins, negotiate new supply agreements, adjust product specifications, or raise prices if memory costs remain elevated.