Apple Inc. (AAPL): Memory inflation could push Apple’s December-quarter margin and EPS below consensus, despite support from international pricing

Overview

This estimate-change report assesses how rising memory costs, launch timing, product mix and international pricing could affect Apple’s December-quarter profitability. Bernstein’s updated global-pricing model forecasts $2.87 of EPS, below both its prior $3.00 estimate and the $2.92 consensus forecast, while retaining an Outperform rating and $370 target price.

Core views

Bernstein argues that the main December-quarter risk is gross-margin compression from sharply higher DRAM and NAND costs. Its US-price-based bill-of-materials analysis produces a preliminary 39.6% blended iPhone gross margin, 45.8% Apple gross margin and $2.81 EPS. The firm’s final global-pricing model raises those outcomes to 40.4%, 46.2% and $2.87, respectively, because international price increases are stronger than those in the US. Even after that offset, the updated iPhone margin is 210 bps below Bernstein’s prior 42.5% December-quarter estimate, 460 bps below the 45.0% December 2025 level, and 390 bps below the 44.3% embedded in consensus. Apple’s company-wide gross margin is 50 bps below consensus and EPS is 2% below consensus. The cost pressure is concentrated in memory. Bernstein estimates that DRAM and NAND account for about 90% of the $168 year-on-year increase in device cost for a 256GB iPhone 18 Pro Max, with combined memory cost increasing by about $150. Based on 3Q26 contract pricing, the 256GB iPhone 18 Pro Max BOM is estimated at about $725 and total device cost at about $732, versus a $557 BOM and $564 total device cost for the comparable iPhone 17 Pro Max. DRAM and NAND rise from roughly 7% of the earlier model’s BOM to about 26% for the iPhone 18 Pro Max; at 2TB, their combined BOM share rises from just over 20% to more than 50%. The staggered launch schedule creates a premium-heavy December-quarter mix that supports ASP but cannot fully absorb higher costs. With the base iPhone 18 and iPhone 18e deferred to the March quarter, Bernstein assumes the iPhone 18 Pro Max accounts for 37.2% of units, the iPhone 18 Pro for 27.8%, and iPhone DUO for 5.0%. Together, the Pro, Pro Max and DUO represent 70% of estimated unit sales, while the iPhone 17 base and legacy group represents the remaining 30%, down from about 50% in December 2025. Estimated US-price-based blended margins are 35.2% for the iPhone 17 base, 38.9% for the iPhone 18 Pro, 41.1% for the iPhone 18 Pro Max and 46.3% for the iPhone DUO. Storage mix limits the benefit from higher-margin configurations: 59% of premium-model units are assumed to be 256GB, versus 26% at 512GB, 8.5% at 1TB and 6.5% at 2TB. The report estimates 70.5 million December-quarter iPhone units, down about 16% year on year from 84 million. The missing new base model is the principal reason for lower volume, while the $100 increase in legacy-model prices could further weigh on entry-tier demand. Bernstein expects some customers to trade up to the Pro models, whose $100 entry-price increases equal roughly 8%-9%, while others may defer purchases until the base iPhone 18 arrives in spring 2027. Its unit forecast comprises about 26.3 million iPhone 18 Pro Max units, 19.6 million iPhone 18 Pro units, 3.5 million DUO units and 21.2 million iPhone 17 base and legacy units. The firm expects unit growth to improve during 2027 as the base iPhone 18 and iPhone 18e broaden the lineup, subject to pricing, availability, demand elasticity and conversion of deferred demand. For its US calculation, Bernstein adds $7 of warranty cost to each estimated BOM, assumes wholesale pricing at a 10% discount to US retail prices, and weights model and storage-tier margins by assumed sales mix. This yields an estimated $1,198 blended US wholesale iPhone ASP, about $84.5 billion of iPhone revenue and about $33.5 billion of iPhone gross profit. With operating expenses held constant, the report estimates that every $1 billion change in iPhone gross profit changes quarterly EPS by approximately $0.06. International pricing provides the partial mitigation. Bernstein finds that the weighted global iPhone ASP increase is about 1.3 percentage points greater than the US increase, driven particularly by higher FX-adjusted Pro and Pro Max price increases outside the US. It applies a 1.3% uplift to the $1,198 US wholesale ASP, producing an estimated global wholesale ASP of about $1,214 and iPhone revenue of $85.6 billion. The higher ASP lifts iPhone gross margin to 40.4%, Apple gross margin to 46.2%, and EPS to $2.87 without changing unit volume, mix or device-cost assumptions. The firm cautions that Apple’s currency hedging can offset the FX effect on international ASP in either direction. Bernstein identifies additional uncertainty around its preliminary BOM work. It has not yet incorporated third-party teardowns and expects credible teardown data potentially beginning in November. Actual memory procurement costs could differ from contract-price assumptions because of volume discounts, long-term supplier agreements, prepayments and inventory timing. The first-generation DUO has particular uncertainty around display, hinge, chassis, assembly, yield, warranty and repair costs. Margin outcomes also remain sensitive to model and storage mix; a larger DUO or Pro Max mix, or more premium storage sales, would improve blended gross margin. Bernstein sees potentially greater margin pressure in the March quarter because lower-priced iPhone 18 and iPhone 18e models may launch against a higher memory-cost base, but it does not yet have enough visibility to quantify that impact. Despite the near-term guide risk, Bernstein reiterates Outperform and keeps its $370 target price unchanged. The target is based on 33x FY28E EPS or 29.5x EV/FCF. The firm continues to view Apple as a gateway to consumer AI and believes it can win in devices, while highlighting December-quarter profitability pressure as the nearer-term issue.

Analysis framework

Bernstein builds model-level and storage-tier bill-of-materials estimates, adds a $7 warranty cost, applies a 10% wholesale discount to US retail prices, and weights the results by assumed storage and model mix. It then translates iPhone revenue and gross-profit changes into Apple-level gross margin and EPS, before adjusting the US-price result for an estimated 1.3 percentage-point premium in global versus US ASP increases.

Methodology notes

• Industry AnalysisVolume-price decomposition

  Model-, storage-tier-, unit-mix- and ASP-based iPhone profitability analysis

  The report separates unit volume, product mix, storage mix, pricing and component cost to estimate revenue, gross margin and EPS.

• Other

  Bill-of-materials gross-margin calculation

  Bernstein estimates component and warranty costs for each iPhone configuration, compares them with assumed wholesale prices, and weights the resulting margins to calculate blended profitability.

• Valuation methodsP/E and PEG Valuation

  33x FY28E EPS valuation

  The $370 target price is based in part on applying a 33x multiple to Bernstein’s FY28E EPS estimate.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Apple Inc. (AAPL)

  Primary covered company; near-term profitability is pressured by higher memory costs, partially offset by premium mix and international pricing.

  Strengths

  Bernstein views Apple as a gateway to consumer AI and expects premium models to support ASP.

  Weaknesses

  December-quarter iPhone unit volume is estimated to decline about 16% year on year because a new base model is absent.

  Comparison

  Updated December-quarter EPS of $2.87 compares with Bernstein’s prior $3.00 estimate and $2.92 consensus.

  Risks

  Memory inflation, uncertain DUO costs, product-mix variability and potential March-quarter pressure.

Key data

• Updated December-quarter iPhone gross margin40.4%Global-pricing estimate; 390 bps below consensus and 210 bps below Bernstein’s prior estimate.
• Updated December-quarter Apple gross margin46.2%50 bps below consensus; up from 45.8% in the US-price-based analytical output.
• Updated December-quarter EPS$2.87Down from Bernstein’s prior $3.00 estimate and 2% below $2.92 consensus.
• Estimated iPhone units70.5 millionAbout 16% below 84 million in the prior-year December quarter.
• Global wholesale iPhone ASPApproximately $1,214Derived from a 1.3% uplift to the approximately $1,198 US wholesale ASP.
• 256GB iPhone 18 Pro Max device-cost increase$168 year on yearDRAM and NAND account for about 90% of the estimated increase.

Impact & implications

The report’s revised model indicates that international price increases soften, but do not eliminate, the effect of memory inflation on December-quarter profitability. Bernstein expects the premium-heavy launch mix to support ASP, while lower unit volume and higher component costs leave Apple’s updated margin and EPS estimates below consensus.

Risks

• Apple could fall behind in generative AI and face ecosystem disruption from AI-native competitors.
• New form factors could reduce the smartphone’s relevance and erode Apple’s ecosystem advantage.
• An escalation in US-China tensions could disrupt Apple’s access to supply and demand in China.
• Regulatory challenges could constrain monetization of Apple’s ecosystem and high-margin revenue streams.
• Actual DRAM and NAND procurement costs may differ from Bernstein’s assumptions because of discounts, supplier agreements, prepayments and inventory timing.
• First-generation iPhone DUO costs are uncertain across display, hinge, chassis, assembly, yields, warranty and repairs.

What to watch

• Third-party device teardown data expected potentially beginning in November.
• DRAM and NAND contract pricing and Apple’s actual memory procurement costs.
• December-quarter model and storage-tier mix, especially the share of DUO, Pro Max and higher-capacity devices.
• International pricing realization and the effect of foreign-exchange hedging on ASP.
• Pricing, component costs and launch mix for the base iPhone 18 and iPhone 18e in the March quarter.