Apple (AAPL) reported blowout first quarter results after the bell on Thursday, on the back of all-time record iPhone sales, which, in turn, drove all-time record revenue for the company.<\/p>\n
But it wasn’t all good news in Cupertino.<\/p>\n
Apple CEO Tim Cook acknowledged that the global memory chip shortage is hitting the company, saying he expects to see an impact in the current quarter and beyond. The company is projecting Q2 margins between 48% and 49%, roughly flat over the prior quarter and similar to the margins during the last two years in the same period.<\/p>\n
But memory chip prices, Cook said, are expected to increase \u201csignificantly\u201d in the coming quarters, which could force Apple to either swallow the increased costs \u2014 cutting into its future margins \u2014 or raise the price of its phones.<\/p>\n
The company is also contending with a supply shortage of the advanced processors that power its iPhone 17, as demand for tech hardware of almost any shape and size from the AI build-out pressures global supply chains.<\/p>\n
\u201cWe exited the December quarter with very lean channel inventory due to that staggering level of demand. And based on that, we’re in a supply chase mode to meet the very high levels of customer demand,\u201d Cook explained.<\/p>\n \u201cThe constraints that we have are driven by the availability of the advanced nodes that our [systems-on-a-chip] are produced on. At this time, we’re seeing less flexibility in the supply chain than normal.\u201d<\/p>\n Apple\u2019s Q1 sales topped out at $143.8 billion, well ahead of Wall Street estimates of $138.4 billion, with the iPhone accounting for $85.3 billion of the top line number.<\/p>\n \u201cThe demand for iPhone was simply staggering, with revenue growing 23% year-over-year and all-time records across every geographic segment,\u201d Cook said on the company\u2019s earnings call.<\/p>\n But supply constraints could restrict how many iPhones Apple can build and sell in the coming quarters, putting an artificial cap on revenue for now.<\/p>\n Apple\u2019s memory chip issues can be traced back to the tech industry\u2019s worldwide AI data center build-out.<\/p>\n AI data centers are made up of hundreds of large, rectangular server racks, which themselves contain thousands of servers. Each server is essentially an individual, high-powered computer that communicates with all the other servers on the rack.<\/p>\n Like any high-speed computer, each server requires memory, and because tech companies are racing to build data centers as fast as they can, they\u2019re buying up huge amounts of memory chips.<\/p>\n The problem for Apple, and every other tech company not<\/em> in the data center game, is that data center memory uses the same components as memory used in smartphones, PCs, cars, medical equipment, or anything else that\u2019s a computer, creating scarcity, which drives up memory prices.<\/p>\n<\/p><\/div>\n According to TD Cowen analyst Krish Sankar, Apple could face a roughly 25% increase in memory costs in Q1 and Q2.<\/p>\n To deal with that, Apple will either have to absorb the memory price increases \u2014 eating into its margins on iPhone sales \u2014 or raise the price of its upcoming phones.<\/p>\n Jefferies analyst Edison Lee laid out Apple\u2019s two potential pricing strategies in a research note, writing that the company could increase the price of its upcoming iPhone 18 by $100-$150, or raise the price of its less expensive, low-storage iPhones more than the high-storage models to incentivize customers to opt for the pricier phones and lock in higher margins.<\/p>\n \u201cThis would likely work for [Pro, Pro Max], and foldable models as their buyers are less price sensitive,\u201d Lee wrote.<\/p>\n As for Apple\u2019s processor shortage, the company will simply have to work with its suppliers, namely TSMC, to expand capacity, or get comfortable with iPhone sales being pushed into later quarters as supply catches up with demand.<\/p>\n Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at <\/em>@DanielHowley<\/em><\/a>.<\/em><\/p>\n For the latest earnings reports and analysis, earnings whispers and expectations, and company earnings news, click here<\/strong><\/p>\n Read the latest financial and business news from Yahoo Finance<\/strong><\/p>\n<\/p><\/div>\n<\/div>\n<\/div>
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