Apple: How bad could December Qtr Gross Margins be?

Apple's recent product release didn't disappoint (see our analysis here), but given rising memory costs, concerns linger on what this means for gross margins in the December quarter (FQ1'27). We analyze here the potential impact with new BOM, price and mix assumptions. Our detailed BOM and mix analysis points to downside risk to Apple's December-quarter gross margin and EPS, although stronger international pricing provides a partial offset. Using US market prices, our preliminary analysis implies 39.6% blended iPhone gross margin and 45.8% Apple gross margin. After incorporating stronger international price increases, our global pricing analysis supports 40.4% iPhone gross margin (390bps below cons.), 46.2% Apple gross margin (50bps below cons.), and $2.87 EPS (2% below cons.), which are now reflected in our new Bernstein model. The primary source of margin pressure is sharply higher memory costs. DRAM and NAND account for approximately 90% of the estimated $168 YoY increase in device