Apple's Inventory Jumps 154% as Memory Chip Prices Squeeze Margins
The company is stockpiling memory components ahead of what its CEO calls an "unprecedented" price surge, and the costs are already eating into profit forecasts.
Apple is sitting on a lot more inventory than it used to, and the reason comes down to one thing: memory chips are getting expensive, fast.
In earnings reported Monday, Apple disclosed that its inventory climbed to $14.54 billion in the fiscal fourth quarter, up from $11.09 billion the prior quarter, a 31.1% jump in three months. Compared to the same period last year, when inventory sat at $5.72 billion, that's a 154.3% increase. For a company known for running famously lean supply chains, that's a striking shift, and it points to a strategy of buying up components, especially memory, before prices climb even further.
That strategy is already showing up in the numbers. Apple reported a gross margin of 47.9% for the September quarter, but it's forecasting margin of just 45% to 46% for the current December quarter, and the company says higher memory costs are largely to blame.
An "unprecedented" squeeze
Apple CEO John Ternus didn't mince words on the earnings call, telling analysts the current memory pricing environment is "unprecedented." He said the company had already seen memory costs rise in the September quarter compared to June, though that hit was partly cushioned by inventory the company had stockpiled earlier along with some savings on non-memory components.
The December quarter will be worse, according to Ternus, who said Apple expects "even higher memory costs" through the holiday period. Apple is leaning on price increases it rolled out earlier this year to help offset that pressure, including hikes on Mac and iPad at the end of June and on iPhone in September. Beyond December, Ternus said, the trend doesn't reverse: Apple expects memory costs to keep climbing.
He also acknowledged that the cushion from existing inventory won't last. Apple expects a "decreasing benefit from the carry-in inventory on memory over time," which is part of why the company is buying more of the component now rather than later. Ternus said Apple's manufacturing purchase obligations rose by $33 billion between the June and September quarters, a detail that will show up in the company's annual filing.
Apple also brought COO Sabih Khan, who runs the company's supply chain and manufacturing operation, onto the call specifically to field questions about memory. Khan backed up the increased purchase commitments Ternus described, but when pressed, he didn't rule out further price increases on Apple products down the road.
iPad sales take the hit
The memory crunch isn't just a margin story, it's already dented at least one product line. iPad was the one major Apple product segment that failed to grow in the quarter, even as iPhone and Mac both beat Wall Street's expectations. iPad revenue came in at $6.2 billion, short of the $6.7 billion analysts had projected and down 10% from a year earlier. Apple attributed the weakness directly to supply constraints.
The broader memory chip crunch has been building across the tech industry, driven by surging demand tied to AI infrastructure buildouts that compete for the same manufacturing capacity consumer electronics makers rely on. Apple's response, buying aggressively now and passing some of the cost to consumers through price hikes, suggests the company expects this isn't a short-term blip it can simply wait out.
What happens next largely depends on how long elevated memory pricing persists and whether Apple needs to raise prices further to protect margins. For now, the company is betting that stockpiling today is cheaper than paying tomorrow's prices, even if that bet shows up as a swollen inventory line on the balance sheet.
