Apple Just Stockpiled $10 Billion of Parts While Warning Memory Prices Are ‘Unprecedented.’ Should Investors Worry?
Apple (AAPL -2.25%) just revealed to investors that it’s buying parts as fast as it can, and it is paying up big to do it.
The company’s annual report, filed Tuesday, shows components inventory of $10.4 billion as of Sept. 26, up from $2.1 billion a year earlier. Meanwhile, finished goods, meaning iPhones and Macs sitting in warehouses, barely moved, rising to $4.1 billion from $3.6 billion. In other words, nearly all of the buildup in inventories is parts.
The filing came a day after John Ternus, on his first earnings call as CEO, said “What we’re seeing with memory pricing right now is unprecedented” and warned that costs will climb further. Put the two together, and you get a clear picture of how the world’s most valuable consumer company is handling a memory shortage.
Image source: Getty Images.
Apple Is Buying Ahead
The parts pile isn’t the only sign. Apple had $89.7 billion in manufacturing purchase obligations at fiscal year-end, with $82.7 billion due within 12 months. A year earlier, that total was $56.2 billion. Ternus said those obligations rose by $33 billion in the September quarter alone.
Building that stockpile cost real cash. Inventory soaked up $8.9 billion of operating cash flow in fiscal 2026, after adding $1.4 billion the year before. Of course, Apple can afford it: The tech giant still generated $145.1 billion in cash from operations, and it spent $85.8 billion buying back its own stock.
The 10-K is blunt about why. Apple says it is facing supply constraints and rising costs for advanced chips, memory, and storage, and it “expects these trends to intensify for memory and storage components.” It also warns that price increases “may not effectively mitigate these negative impacts, and may also reduce demand for the Company’s products.”
Where the Pain Shows Up
The cost is already hitting margins. Apple’s gross margin was 47.9% in the September quarter, but that included about one percentage point from tariff refunds. Without those refunds, CFO Kevin Parekh said, margin fell about a point from the June quarter, “driven entirely by memory impacts.”
The December quarter looks tighter. Parekh guided gross margin to 45%-46%, mainly due to higher memory costs and some spending to roll out Siri AI. Ternus added that memory prices should keep rising beyond December, while the cushion from cheaper parts Apple bought earlier shrinks.
Apple has already passed some of that on to customers. Parekh said the company “reluctantly” raised prices on iPad and Mac around June and on iPhone in September, and it’s too early to say how buyers will respond.
Memory is also limiting what Apple can sell. Chief Operating Officer Sabih Khan said Mac and iPad supply in the December quarter will be held back mainly by memory constraints, as demand has run ahead of expectations.
Why Apple Is Still in a Strong Spot
Despite the frenzy around memory, there’s one big bright spot for Apple: Product demand is certainly not a problem. Revenue rose 12% to a record $114.5 billion for the September quarter, and iPhone sales jumped 17% to $57.6 billion. Meanwhile, services grew 10% to $31.6 billion. For the full year, revenue climbed 15% to $478.8 billion and net income reached $132.2 billion.
Apple also expects December-quarter revenue to grow 7% to 10%, which Parekh said would make it the biggest revenue quarter in company history.
And the stockpile cuts both ways. When memory is scarce, the company that can commit tens of billions of dollars to suppliers in advance gets served first. Smaller phone and PC makers don’t have Apple’s balance sheet, so the same shortage that trims Apple’s margin could cost them sales outright.
What Investors Should Watch
The memory squeeze is also a signal about who’s winning right now. When Apple, one of the largest buyers of memory chips in the world, says prices are “unprecedented,” that’s good news for the semiconductor companies selling them, including Micron Technology (MU +2.41%).
For Apple shareholders, an important number to track is gross margin. If it stays near the 45% to 46% range and revenue keeps growing, the memory hit is a speed bump. If price increases start to dent iPhone demand, as Apple’s own filing warns they could, that’s a bigger problem.
So, is Apple stock a buy? The company is choosing to protect supply and sales over a point or two of margin, and it has the cash to do it while still paying a $0.27 quarterly dividend and buying back stock. For long-term investors, that looks like the right trade. Just don’t expect margins to look as clean as they did last year until memory prices cool down.
Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.