727 FinanceApple is highly likely to deliver earnings for this quarter that are close to or slightly above expectations, but its guidance for the next quarter may not satisfy the market.
Author: qinbafrank
Apple will report earnings after the U.S. market close on November 2. My baseline judgment is that this quarter will most likely deliver results close to expectations, but next quarter's guidance may not satisfy the market. These two judgments can hold at the same time: Apple still has strong product competitiveness, and rising costs are genuinely eroding profits.
This corresponds to the third quarter of calendar year 2026, which Apple calls FY2026 Q4 in its financial reporting. The market currently expects revenue of about $113.0 billion to $113.6 billion and EPS of about $1.98 to $1.99. Apple previously guided revenue growth of 9% to 11%, corresponding to about $111.7 billion to $113.7 billion. In other words, the market has basically positioned for the upper end of the guidance.
Simply meeting guidance would not produce much of a surprise. More noteworthy is that the market expects revenue growth of about 11% but EPS growth of only about 7% to 8%, meaning cost pressure has already entered analysts' models. Many people worry whether memory price increases will cause Apple to repeat the post-earnings pattern seen at Intel.
Let me first clarify Intel's situation. Intel's just-reported quarterly revenue and adjusted EPS both beat expectations; the main problem was next quarter's guidance. Weak PC demand, supply constraints, and cash spending together lowered the market's judgment on future earnings. Apple may similarly show a combination of acceptable current-quarter results and weak next-quarter outlook. But the two companies' cost structures differ greatly: Apple has high-end products, services revenue, and inventory buffers, while Intel also bears the pressure of its own manufacturing system, so the comparison cannot be applied directly.
Apple's gross margin is already reflecting higher memory costs.
Reported gross margin for the June quarter was 50.1%, of which about 2 percentage points came from tariff refunds; simply excluding that leaves about 48.1%. Gross margin guidance for the September quarter fell to 47% to 48%, still including about 1 percentage point of refund contribution; excluding that, it is only 46% to 47%.
Looking at this change, it is clear that Apple has not escaped memory price increases. Inventory and price increases have helped ease part of the pressure, and the remaining impact is already reflected in guidance.
Cheap inventory has been sold through, and newly purchased high-priced components are beginning to enter cost of sales. For financial reporting, changes in purchase prices and changes in profit margins are often separated by an inventory turnover cycle.
A rough calculation: assuming quarterly revenue of $113.4 billion, a 16.5% tax rate, and 14.65 billion diluted shares, every 1 percentage point by which total gross margin falls short of expectations would reduce EPS by about 6.5 cents.
The market only expects $1.99 in EPS, so an additional 6.5 cents of pressure is already quite significant. Therefore, when I look at this earnings report, I will first look at the source of gross margin changes, and then at whether EPS beats expectations.
iPhone remains the largest support, but the quality of revenue growth needs to be broken down.
The market expects iPhone revenue this quarter of about $56.4 billion to $57.2 billion, corresponding to growth of about 15% to 17%. Note that the iPhone 18 Pro series only went on sale on September 18, so this quarter covers only a very short initial sales window; the foldable iPhone Duo did not go on sale until October 23, mainly affecting next quarter.
For next quarter, premiumization will raise average selling prices, and price increases can also cover part of costs. But after prices rise, whether unit sales can hold up is another test.
Duo has another issue worth pressing on during the earnings call: how much new demand did it bring, and how much did it cannibalize purchases of Pro Max and iPad?
The services business is another key support.
The market expects services revenue this quarter of about $31.5 billion to $31.7 billion, up about 10% year over year. Compared with hardware, services gross margin is clearly higher, and whether growth can be maintained is important to group profit.
But differences within services will also become increasingly large.
App Store depends on user spending and the commission Apple actually receives. Off-platform payments and adjustments to commission structures could cause the two to diverge. iCloud depends more on storage demand and paid penetration; AppleCare is related to new device sales and attach purchases.
What I am more worried about is the combination of hardware gross margin being pushed down by memory while services growth also weakens. In that case, Apple's past ability to offset cost fluctuations through its business mix would be tested.
Mac and iPad are also worth watching, especially demand elasticity after price increases.
Mac revenue grew 29% last quarter, while the Zacks segment consensus for this quarter is only about 10%; iPad revenue is still expected to decline about 6% year over year. Unit sales, price increases, and delivery constraints need to be analyzed together. Revenue growth
Looking again at the public views of several Wall Street institutions, a very interesting phenomenon is that they are bullish on Apple in the long term but worried about guidance in the short term.
Goldman Sachs maintains Buy and raises its target price to $390, expecting revenue this quarter of about $113.6 billion and EPS of $2.01. But its forecast for next quarter is only $151.2 billion in revenue, $2.88 in EPS, and a 46.8% gross margin, all below the market consensus it cites.
Morgan Stanley maintains Overweight and a $355 target price, expecting this quarter to be basically in line and next quarter's revenue guidance to show only low-to-mid single-digit growth, with iPhone revenue and gross margin also possibly slightly below sell-side consensus.
JPMorgan maintains Overweight and a $360 target price, and has recently cut its next-quarter unit sales forecast, citing reasons including changes in new product launch timing. It remains bullish on premiumization and the multi-year replacement cycle, but also emphasizes that Duo's long lead times are affected by supply constraints.
From these disagreements, what I read is this: Apple's product cycle remains attractive, but short-term margins are not equally smooth.
My baseline estimate for this quarter is revenue of about $113.8 billion, total gross margin of 47.7%, and EPS of about $2.01, slightly above consensus.
This estimate uses about $19.3 billion in operating expenses, $350 million in other net income, a 16.5% tax rate, and 14.65 billion diluted shares. It is a set of scenario assumptions and does not represent earnings guidance the company has ever given.
For next quarter, I will be more conservative.
The public Visible Alpha consensus is about $153.0 billion in revenue and $2.93 in EPS. I lean toward revenue landing near $148.0 billion to $152.0 billion, corresponding to growth of about 3% to 6%. Using $150.0 billion in revenue, a 46.5% gross margin, and $20.5 billion in expenses as the central scenario, with a roughly stable tax rate and slightly lower share count, EPS would be about $2.85.
Apple also has another important support: cash flow.
According to company statements, operating cash flow for the first nine months of FY26 was about $117.0 billion, capital expenditures were about $6.8 billion, and simple calculation puts free cash flow at about $110.2 billion. This cash generation capability can support continued buybacks and also helps the market assign a higher valuation.
For new CEO John Ternus, this call also has another task: to provide a clearer link between AI investment and commercial returns.
Siri AI usage, whether it can drive device purchases, and whether it increases paid behavior—this information would be more helpful than general user feedback. Apple has a huge user base, but investors still need to see how this advantage translates into incremental profit.
On the earnings day, I will focus on the December quarter guidance, check revenue growth and gross margin excluding refunds, and then look back at where this quarter's beat came from.
1) If next quarter's revenue is only slightly below sell-side consensus and gross margin can hold steady, the market may not react very badly. Some cautious expectations already exist.
2) If revenue guidance is clearly weak, gross margin is still declining, and services do not provide enough support, future earnings forecasts will need to be revised down. Earning a few extra cents of EPS this quarter can hardly offset such a change.