Tech & AI
Apple slides after warning memory costs may keep rising
Apple slid on Tuesday after telling analysts that pricier memory chips would squeeze its profit margin beyond the holidays. The memory makers that supply it rallied.
Quick Read
- Apple's gross margin forecast for the period ending in December came in below what analysts expected, mainly because memory chips cost more.
- Apple's chief executive said he sees memory prices rising after December, and its operating chief said Mac and iPad supply could be tight.
- Memory makers Sandisk, Micron, Western Digital and Seagate rallied, though each still sits well below its 52-week high.
- Apple lost far more market value on the day than Micron added.
Why did Apple shares fall?
Apple Inc. (Nasdaq: AAPL) slid 1.9% on Tuesday, closing at $331.90. The company lost $94 billion in market value, the combined worth of all its shares.
Why it matters: The trigger was Apple's guidance, its own forecast for the months ahead. Gross margin is the share of sales left after paying to make the products. Kevan Parekh, the chief financial officer, put it at 45% to 46% for the period ending in December. He gave that range on Monday's earnings call.
By the numbers: Analysts had expected 46.3%. Parekh pointed mainly to higher prices for memory chips.
The drop left Apple 4.9% below its 52-week high of $348.91. Over a longer stretch, $1,000 put into Apple a year ago was worth $1,234 at Tuesday's close.
What did Apple say about memory chips?
Chief Executive John Ternus told analysts that Apple sees memory prices still climbing after December. That pushes the cost pressure past the holiday season.
Chief Operating Officer Sabih Khan said Apple expects Mac and iPad supply to be tight through December, mostly because of memory. He also cited an increase of $33 billion in purchase obligations between the June and September reporting periods. Purchase obligations are money Apple has committed to pay its suppliers.
Higher memory prices raise what Apple pays to build Macs and iPads. That cost is what pulled the margin range below expectations.
Why did memory stocks rise?
The companies that sell memory read the same remarks as a sign they can charge more. Sandisk Corp. (Nasdaq: SNDK) climbed 4.8%. Micron Technology Inc. (Nasdaq: MU) rose 2.6%, adding $24 billion in market value.
Other storage makers moved with them. Western Digital Corp. (Nasdaq: WDC) rose 2.6%, and Seagate Technology Holdings (Nasdaq: STX) rose 2.1%.
The gains started from low points. Sandisk closed 51.8% below its 52-week high, and Western Digital 53.5% below its own. Micron sat 29.5% under its high.
Tech stocks rose broadly. The technology sector fund XLK gained 1.3%. The Nasdaq-100, an index of the biggest Nasdaq-listed companies, mostly tech, rose 0.7%. The S&P 500 rose 0.4%.
How much did this move a broad index fund?
Apple accounts for 5.4% of the value of the 500 largest U.S. companies, and Micron for 1.1%.
Apple's drop took $103 from $100,000 spread across those companies by size. Micron's gain added $28 back.
What is still unclear?
The other side: The open question is how long memory prices keep rising, as Ternus described. Apple's next earnings report could show whether gross margin landed inside Parekh's range.
Before that, the October jobs report arrives Friday, Nov. 6, at 8:30 a.m. ET. October consumer prices follow on Nov. 10 at 8:30 a.m. ET. Either release may move tech stocks along with the rest of the market.
For readers
What it could mean for you: If you own Apple shares directly, the margin forecast reaches you in full, with no other holdings to offset it. Higher memory prices could weigh on Apple's profit for as long as they last, and Ternus said he sees them rising after December. If you own Micron, Sandisk, Western Digital or Seagate, those same costs are their sales. Their shares could respond to any sign that memory prices hold up or ease. Owning Apple alongside a memory maker could leave the effects partly offsetting.
Questions and answers
Why did Apple stock fall after earnings?
Apple forecast a gross margin range for the period ending in December that sat below analysts' expectations. Chief Financial Officer Kevan Parekh pointed mainly to higher memory chip prices.
Why are memory stocks up after Apple's earnings?
Apple's comments signaled that memory makers can charge more. Chief Executive John Ternus said Apple sees memory prices rising after December, and the company has committed more money to its suppliers.
Could Mac and iPad supply be tight?
Chief Operating Officer Sabih Khan said Apple expects constrained Mac and iPad supply through December, mostly because of memory.
The numbers
| Micron Technology (MU) price | $855.10 |
|---|---|
| Micron Technology (MU) change | +2.58% |
| Micron Technology (MU) market value | $970 billion |
| Micron Technology (MU) 52-week high | $1,213.56 |
| Apple (AAPL) price | $331.90 |
| Apple (AAPL) change | −1.90% |
| Apple (AAPL) market value | $4.8 trillion |
| Apple (AAPL) 52-week high | $348.91 |
| Sandisk (SNDK) price | $1,126.52 |
| Sandisk (SNDK) change | +4.78% |
| Sandisk (SNDK) market value | $160 billion |
| Sandisk (SNDK) 52-week high | $2,335.00 |
| S&P 500 change | +0.36% |
| 10-year Treasury yield | 4.95% |
Tuesday’s close
Companies in this story
Share this story
Not investment advice.
