Key facts
- Apple CEO Tim Cook warned of a "100-year flood" in memory chip pricing.
- Memory chip prices increased up to 90% in Q1 2026.
- Rising memory costs are the primary factor impacting Apple's financial performance.
- Apple's Q3 2026 gross margin was 50.1%, boosted by a tariff refund.
- Apple expects Q4 2026 gross margin between 47% and 48%.
- Apple has increased prices on some devices and may raise them further for new iPhones.
Apple CEO Tim Cook has characterized the current surge in memory chip pricing as a "100-year flood" event, driven by a significant imbalance between supply and demand fueled by the technology industry's rush for chips for devices and data centers. This situation is expected to pressure Apple's profit margins, despite the company's efforts to mitigate costs and its strong historical purchasing power.
On his final earnings call before handing over leadership to John Ternus, Cook highlighted that some memory prices have increased by as much as 90% in the first quarter of 2026 alone. CFO Kevan Parekh stated that these rising memory costs are the primary driver behind the financial pressures, explaining "more than 100%" of the change in gross margin. The company's Q3 2026 gross margin of 50.1% included a two-percentage-point benefit from a tariff refund, which, without it, would have shown a quarter-over-quarter decline.
Looking ahead, Apple has guided for a Q4 2026 gross margin between 47% and 48%, which also includes a one-percentage-point tariff benefit. This suggests the underlying margin situation is more challenging. Parekh indicated that while price reductions on other components and existing inventory might offer some offset, the peak impact of higher-priced memory shipments may still be approaching. Apple has already begun raising prices on its Mac lineup and other devices, and further increases are anticipated with the launch of new iPhone models in September.
Despite these headwinds, iPhone sales saw a 22% year-over-year increase in the third quarter, continuing a strong growth trend. Apple is actively working to reduce costs on other components to buffer the impact of rising memory chip expenses. However, Cook cautioned that memory prices are expected to continue climbing beyond the September quarter, potentially leading to an increasing impact on Apple's business and risking alienation of cost-sensitive consumers.