Apple Inc. (NASDAQ:AAPL) issued its December-quarter guidance on Monday, and while the company anticipates record revenue, a closer look at the numbers reveals an underlying squeeze on profitability. Based on the midpoint of management's forecasts, operating profit for the holiday quarter is projected to come in at $50.37 billion, roughly 1% below the $50.85 billion reported for the same period last year. This occurs even as revenue is expected to climb 8.5% to $155.98 billion.
The divergence stems from two primary factors: a contraction in gross margins and an acceleration in operating expenses. Apple guided for gross margins between 45% and 46%, down from 48.16% in the December 2025 quarter. Meanwhile, operating expenses are expected to rise to a range of $20.40 billion to $20.80 billion, compared with $18.38 billion a year earlier. At the midpoint, the increase in operating expenses ($2.22 billion) outpaces the growth in gross profit ($1.74 billion), creating a $484 million gap that translates into lower operating income.
Apple's guidance includes revenue growth of 7% to 10% year-over-year, which would put December-quarter sales between $153.82 billion and $158.13 billion. The company did not provide an explicit operating profit forecast, but the arithmetic is straightforward. Using the midpoint of each range—8.5% revenue growth, a 45.5% gross margin, and $20.6 billion in operating expenses—the implied operating profit falls short of last year's figure.
To put the scenarios in perspective: the low end of guidance (7% growth, 45% margin, $20.8 billion expenses) would yield operating profit of $48.42 billion, down 4.8% year-over-year. The high end (10% growth, 46% margin, $20.4 billion expenses) would produce $52.34 billion, up 2.9%. The midpoint sits at $50.37 billion, a 1% decline. These are arithmetic endpoints, not probability-weighted forecasts.
Management's caution is largely attributed to unprecedented memory pricing, as CEO John Ternus noted on the earnings call. Earlier purchases of cheaper memory have helped contain costs, but that benefit is expected to diminish. Additionally, the rollout of Siri enhancements is adding to December-quarter expenses. These factors are pressuring margins and offsetting some of the benefits from strong iPhone and Services growth.
Apple's September-quarter results, filed with the SEC, showed revenue of $114.48 billion, up 11.7% year-over-year. Net income reached $30.71 billion, with diluted earnings per share of $2.10. iPhone revenue surged 17.5% to $57.58 billion, while Services revenue grew 9.8% to $31.57 billion. The strong performance underscores the resilience of Apple's core product lines, but the holiday outlook suggests that cost pressures are beginning to bite.
Morningstar analyst William Kerwin, as reported by Reuters, highlighted iPhone as "the linchpin of this ecosystem," emphasizing its importance to Apple's overall strategy. However, the margin compression and expense growth are concerns that investors are weighing. The stock traded at $329.90 at 10:31 a.m. EST on Tuesday, down 2.49% from its previous close, according to Google Finance.
For Apple to match last year's operating profit at the midpoint of its revenue and expense guidance, it would need a gross margin of 45.81%, which is 0.31 percentage points above the guided midpoint. Whether the company can close that gap during the holiday quarter remains an open question. With memory costs potentially rising further and supply constraints a lingering risk, the path to margin recovery is uncertain.
Investors will be watching closely to see if Apple can navigate these headwinds while maintaining its growth trajectory. The company's ability to manage costs and sustain demand for its flagship products will be critical in the coming months.
