Apple’s Tim Cook era ends with a record $109B quarter
Apple’s outgoing CEO, Tim Cook, bade an emotional farewell to analysts and shareholders on Thursday as the company announced a record June quarter. His successor, John Ternus, takes over at the beginning of September with the company seemingly in solid shape.
The results were impressive, though some worrying challenges were confirmed. Apple managed to set a new June quarter record, but acknowledged slowing services growth and an unexpected mishap in forecasting future demand. Mac sales jumped an absolutely astonishing 28.7%, as the MacBook Neo grabbed consumer imagination, and overall the company saw growth everywhere except the iPad.
Apple’s fiscal Q3 2026 results saw the company generate $109.4 billion in revenue, up 16% year-over-year for a net quarterly profit of $29.8 billion. Gross margin for the quarter was 50.1%, compared to 46.5% in the year-ago quarter (though two points of this was attributed to tariff returns).
More specifically:
iPhone sales were up 21.7%, an unusually high number for what is traditionally a slower quarter.
Wearables increased 6.5%.
Services revenue increased 12%.
And the iPad declined 5.9%.
The Mac is out the bottle
Apple’s huge Mac quarter is a bellwether moment for the company. The platform is benefiting from both the iPhone halo and the MacBook Neo/MacBook Pro blessing. Apple confirmed MacBook Neo is drawing interest from education and enterprise clients, with Apple CFO Kevan Parekh noting that roughly half of the large US education Mac purchases during the quarter displaced Windows and Chromebook devices.
Big business wins included a massive 20,000-unit iPhone deployment at Morgan Stanley as the company shifted from employee-owned to corporate-owned/managed devices. The only problem is that demand for both Macs and iPhones is greater than Apple originally anticipated; as a result, some systems could be in short supply moving forward.
Memory, components, and demand
Cook described the current memory pricing environment as a “100-year flood” that forced Apple to raise prices on iPads and Macs. Parekh explained that memory cost changes explain more than 100% of the sequential gross margin decline, with adjusted gross margin falling from 49.3% in March to 48.1% in June (excluding tariff refunds). They’re projected to decline further.
Cook noted the DRAM market has only three primary suppliers, and Apple is evaluating options for additional supply flexibility.
The company also has a fresh problem on its hands, in that its iPhones and Macs are selling in much bigger quantities than Apple expected. And while the company managed to meet demand in the quarter, it might be constrained in the next. “It’s not a regular supply issue. It’s a demand forecast issue, to be candid,” Cook explained. “The iPhone and the Mac are both doing remarkably better than we thought they would do.… We continue to expect high levels of demand. However, with less flexibility in supply chain, we expect the impact from the supply constraints to increase significantly sequentially.
“We’re seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it.”
Services grew, right?
Apple’s services revenue also grew, but not as much as many analysts had anticipated. Apple passed $30 billion for the first time in a June quarter, buoyed by all-time records in cloud and payment services, while the company’s paid subscription base surpassed 1.5 billion.
At the same time, Apple confirmed headwinds to services income, principally around currency exchange impacts and volatile economies, softness in mobile gaming, and – confirming the punitive impact of regulation on this part of the Apple business model – App Store business model changes.
What no one yet can know is the extent to which Apple’s recently announced Klarna product leasing deal will contribute both to services income and to accelerated replacement cycles. With 1.5 billion people in its addressable market, it’s very possible that a substantial number of customers will decide to pay for their Apple products on a monthly basis. The result would be a stable, predictable income stream for the company.
What about AI?
Apple’s introduction of Siri AI is delayed in the EU and China due to regulatory hurdles, though the situation in China could soon change following recent reports of an AI support deal with Alibaba and Baidu.
Goldman Sachs analyst Michael Ng asked about Siri AI plans and experience. Cook said the company remains “off the charts excited” about Siri AI, and the company continues to receive positive feedback, though he added some warnings about cost.
Cook explained that to handle users who might want to use Siri AI extensively, the company plans an upgrade option through iCloud+, though it is too early to define the specifics. (Incoming CEO John Ternus said Apple is focused on its own approach to artificial intelligence, but continues to see “enormous opportunity” in the sector.)
What the analysts said
Discussing the results, Morgan Stanley analyst Erik Woodring pointed to decelerating services growth and memory costs nibbling at the edge of Apple’s margins. “Apple’s leverage over the supply chain appears to be in question,” he said, adding it’s not clear whether AI is serving as a measurable tailwind to products or services, with its future monetization impact still uncertain.
Bank of America analyst Wamsi Mohan noted that continued demand means supply constraints are the biggest inhibitor for the stock, since demand will be shunted into subsequent quarters. Wells Fargo also pointed to the longer range picture that despite supply challenges in the current quarter, Apple still has plenty of momentum going into Q1 2027.
Finally, Jeff Pu, of GF Securities, speculated that demand might also be impacted by an estimated $300 increase in the cost of the upcoming 18 Pro series of devices, though this may be partially mitigated by Apple’s new leasing deal.
Cook’s watch is almost over
This was Cook’s 19th and final earnings call as CEO, with his successor joining the call for the first time. Cook closed the meeting with this message: “As you know, this will be my final earnings call, and John will lead these calls going forward. The transition is going seamlessly, and I am beyond excited for John to step into his new role and lead Apple into its next era.”
Apple stock was down around 9% at mid-day Friday as investors consider the quarter’s record results.
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