Apple Q3 Fiscal 2026 Earnings: Supply Constraints and Memory Costs Temper a Record Quarter

Apple reported a strong June quarter, with revenue up 16% to a record $109.4B and diluted EPS up 29% to $2.02. Growth was led by iPhone and Mac, while services continued to expand at a double-digit rate despite foreign-exchange headwinds.

The underlying story is more mixed than the headline suggests. Demand for Apple’s newest iPhone and Mac products exceeded management’s expectations, but constrained supply of advanced chips is now limiting September-quarter growth. At the same time, sharply higher memory costs are pressuring gross margin and prompted Apple to raise prices on some Mac and iPad products.

As Reported on the Call

Apple said tariff refunds added approximately two percentage points to company gross margin and contributed $0.11 to diluted EPS during the quarter.

The Bigger Story

Apple’s June-quarter performance points to a stronger-than-expected product cycle, particularly for the iPhone 17 family and the new Mac lineup. iPhone revenue rose 22% year over year, while Mac revenue increased 29% despite supply constraints. Management characterized the constraints not as a supplier failure, but as the consequence of demand running ahead of its forecasts and limited flexibility in advanced semiconductor production.

That demand strength is positive for Apple’s near-term product competitiveness, but it is also creating a practical ceiling on revenue growth. Supply constraints affected Mac most heavily in the June quarter and, according to management, will increase significantly in the September quarter across iPhone, Mac, and iPad.

The other important change is on costs. Apple is facing what Tim Cook called a “100-year flood” in memory pricing, with costs rising sequentially in March, June, and expected to rise again in September. Carry-in inventory and lower costs for certain non-memory components have partly offset the pressure, but management said those inventory benefits should decline beyond September.

Revenue and Operating Performance

iPhone remained the main growth driver. Revenue reached $54.3B, up 22% year over year, supported by the iPhone 17 family. Apple reported June-quarter iPhone revenue records in every geographic segment, while the iPhone installed base reached an all-time high. Management also said it recorded a June-quarter record for upgraders.

The strength appears broad-based rather than concentrated in one region. Apple said iPhone revenue grew at a double-digit rate in the vast majority of markets it tracks, and cited global market-share gains based on IDC data. The company also said iPhone was the top-selling model in several major markets, including the U.S., urban China, the U.K., France, Australia, and Japan, according to Worldpanel.

Mac was the fastest-growing major hardware category. Revenue increased 29% to $10.4B, driven by MacBook Pro and the newer MacBook Neo. The result is notable because Apple said Mac supply was constrained during the quarter. Management highlighted record results for both Mac upgraders and customers new to the category, including strength in Greater China, India, Latin America, and Southeast Asia.

Enterprise and education adoption were part of the Mac narrative. Apple cited deployments by Morgan Stanley, Disney, Crédit Agricole, and several U.S. school districts. These examples do not establish a separate enterprise revenue stream, but they suggest Apple is positioning on-device AI capabilities, privacy, and lower cloud-computing costs as reasons for businesses and schools to choose Mac over Windows or Chromebook devices.

iPad was the weak point within hardware. Revenue fell 6% to $6.2B, which management attributed to a difficult comparison with the prior-year launch of an A16-powered iPad. Still, Apple said the iPad installed base reached an all-time high and that more than half of purchasers during the quarter were new to the category.

Wearables, Home and Accessories revenue increased 6% to $7.9B. Growth was driven by wearables and accessories, while Apple said Apple Watch upgrade activity reached a June-quarter record.

Services revenue rose 12% to $30.7B despite what management described as significant foreign-exchange headwinds. Apple reported records across every services category, including all-time highs in cloud services and payment services. It also reported June-quarter records in advertising, the App Store, AppleCare, Apple Music, and Apple TV+.

However, services growth slowed from 16% in the March quarter. CFO Kevan Parekh said foreign exchange was the main reason for the deceleration, though mobile-gaming weakness in the App Store and changes to Apple’s App Store business model in certain countries also contributed. Apple remains subject to a U.S. court ruling affecting link-out transactions and said it is pleased the Supreme Court will hear its appeal.

Profitability and Margins

Apple generated $29.8B of net income and $2.02 in diluted EPS, up 29% from a year earlier. Both figures were June-quarter records, although EPS included a $0.11 favorable impact from tariff refunds.

Reported gross margin was 50.1%, up 80 basis points sequentially. That figure included a roughly two-percentage-point benefit from tariff refunds. Excluding that benefit, management said gross margin would have been at the midpoint of its prior guidance range.

The more consequential margin trend is rising memory costs. In the Q&A, Parekh said memory inflation accounted for more than 100% of the sequential decline in gross margin from 49.3% in March to 48.1% in June excluding tariff refunds. Memory costs are also expected to explain more than the full decline from that 48.1% adjusted June-quarter level to the 46.5% midpoint of Apple’s September-quarter gross-margin outlook excluding tariff refunds.

Apple has partially offset memory inflation through carry-in inventory, lower prices for some other bill-of-materials components, and favorable mix. But management said carry-in inventory benefits are expected to decrease over time. Cook also confirmed that Apple has raised prices on iPad and Mac products, describing the moves as reluctant responses to exceptional memory-cost inflation.

Operating expenses rose 23% year over year to $19.1B, driven primarily by higher R&D investment. Apple did not quantify its AI spending, but management said AI-related costs extend beyond operating expenses into cost of goods sold and other parts of the income statement.

Demand, Customers and Pricing

Management’s central demand message was that iPhone and Mac sales have exceeded internal expectations. The company said the supply constraint originates primarily in advanced semiconductor nodes used for its system-on-chip designs, rather than from a problem with a specific supplier.

Apple is seeking to manage the supply imbalance by pulling supply forward, but Cook said there is a practical limit to that approach. The company expects to “scramble” on supply during the September quarter, with limited flexibility in the supply chain.

The company did not see clear evidence that consumer or enterprise customers have pulled forward iPhone demand. However, Cook said it was too early to determine the demand elasticity resulting from higher Mac and iPad prices because of channel inventory and the time needed for consumers to respond.

Services retains important demand-supporting indicators. Apple surpassed 1.5B paid subscriptions, while both transacting accounts and paid accounts reached all-time highs. Growth in both measures was double digit in emerging markets, according to management.

What is Apple’s guidance and outlook?

For the September quarter, Apple expects total company revenue to grow 9% to 11% year over year. That would represent a meaningful deceleration from the June quarter’s 16% growth rate.

Management attributed the slower outlook to two factors: a sequential foreign-exchange headwind of roughly 2.5 percentage points to the year-over-year growth rate, and significantly greater supply constraints. Those constraints are expected to affect iPhone, Mac, and iPad.

Apple expects iPhone revenue growth in the September quarter to be in the mid-teens year over year, reflecting continued high demand but also the effects of supply constraints and foreign exchange. Services growth is expected to be broadly similar to the June quarter’s reported 12% rate after adjusting for the roughly 2.5-percentage-point sequential FX headwind.

Apple guided for gross margin of 47% to 48%, including an expected one-percentage-point benefit from tariff refunds. Operating expenses are expected to be $19.1B to $19.4B, other income and expense is expected to be around $350M excluding mark-to-market effects on minority investments, and the tax rate is expected to be about 16.5%.

On AI, Apple plans to introduce its reworked Siri AI this fall, though availability will vary by geography. Management said it is working with European regulators to enable a launch on iPhone and iPad in the EU. In China, Apple received approval for the initial Apple Intelligence features, but said more work will be required before rolling out Siri AI.

Balance Sheet, Cash Flow and Capital

Apple ended the quarter with $147B in cash and marketable securities and $84B in total debt. Operating cash flow was $34.4B, a June-quarter record.

The company returned $33B to shareholders during the quarter, including $25.8B in share repurchases and $4B in dividends and equivalents. Apple also declared a quarterly cash dividend of $0.27 per share, payable August 13 to shareholders of record on August 10.

Management said it intends to reinvest tariff refunds in the U.S. The company highlighted a multi-year Broadcom agreement expected to exceed $30B as part of its American Manufacturing Program, as well as plans to manufacture Mac mini systems in Houston later this year.

What Investors Should Watch

1. Supply Recovery Across iPhone, Mac and iPad

September-quarter growth will depend partly on Apple’s ability to secure additional supply from advanced chip-production nodes. Demand appears robust, but constrained availability can defer revenue even if customer interest remains strong.

2. Memory-Cost Inflation and Gross Margin

Memory costs are now the primary factor pressuring margins. Investors should watch whether Apple can offset higher component costs through procurement, product mix, pricing, or lower non-memory component costs after carry-in inventory benefits fade.

3. The Sustainability of iPhone and Mac Demand

The 22% iPhone growth rate and 29% Mac growth rate are unusually strong for Apple’s mature hardware categories. Continued upgrade activity, new-to-Mac customer growth, and demand after price increases will help determine whether the product cycle remains durable.

4. Services Growth Excluding Foreign Exchange

Services remains Apple’s largest source of high-margin recurring revenue, but reported growth has slowed. The pace of cloud, payments, advertising, video, and App Store growth, particularly amid mobile-gaming softness and regulatory changes, will be important.

5. Siri AI Rollout and Monetization

Apple’s AI strategy may strengthen device demand and services engagement, but the financial model is still developing. Management said it may offer iCloud+ upgrade options for heavier Siri AI users, while acknowledging that the balance between computing costs and monetization remains uncertain.

AlgovestIQ Takeaway

Apple delivered a strong operating quarter, with broad geographic growth, a record installed base, and particularly strong demand for iPhone and Mac. The June results indicate that Apple’s latest product cycle is resonating more strongly than management expected, rather than relying solely on services or buybacks to support earnings growth.

The near-term complication is that demand has outpaced supply. Apple’s September outlook still calls for 9% to 11% revenue growth, but supply constraints and foreign exchange are preventing the company from converting all apparent demand into reported revenue. That makes supply availability, rather than consumer demand alone, a key variable over the next several quarters.

Margins are the more significant financial risk. Tariff refunds supported reported June-quarter profitability, while underlying gross margin is moving lower because of higher memory costs. Apple has some offsets available, including pricing actions and inventory benefits, but management expects the latter to diminish beyond September.

The central investment question is whether Apple can preserve its product-cycle momentum while absorbing higher component costs and navigating supply constraints. Evidence of improving semiconductor availability, sustained iPhone and Mac demand after price increases, and stable services growth would support that case. Continued margin compression, persistent supply limitations, or a sharper slowdown in App Store and services activity would weaken it.