Apple’s iPhone Revenue Surges Amid Supply Chain Challenges
In the recent fiscal quarter ending September 26, Apple’s iPhone revenue surged upward by 17%, reaching a noteworthy $57.6 billion.
This stands in stark contrast to a significant decline in the sales of essential components from Qualcomm, Corning, and Arm, all of which reported a downturn in smartphone-related revenues.
Each of these companies attributed their struggles primarily to soaring memory chip prices, a financial strain exacerbated by burgeoning demand in AI data centers, which has disrupted the handset supply chain.
For the complete fiscal year, Apple’s phone sales amounted to approximately $254 billion, accounting for 53% of its total revenue and reflecting a commendable 21% increase compared to the previous year.
Overall, Apple’s quarterly revenue was reported at $114.477 billion, exhibiting an 11.72% growth, with net profits reaching $30.711 billion.
Conversely, Qualcomm revealed a stark 26% year-over-year drop in handset chip revenue, dwindling to about $5.1 billion in its fiscal fourth quarter ended September 27.
This decline followed previous contractions of 13% and 20% in earlier periods. Similarly, both Corning and Arm indicated that a softer smartphone market adversely influenced their financial performances.
Despite Apple’s growth, the narrative throughout the supply chain was bleak. Executives from all four companies identified the surging costs of memory chips as a key issue.
Apple’s management characterized the spike in memory prices as “unprecedented” and raised concerns about the limitations on the supply of advanced-node chips, which have further hampered the production capabilities for iPhones, Macs, and iPads.
This rising cost landscape is reflected in Apple’s margin outlook. The company has adjusted its holiday-quarter gross margin forecast to a range of 45% to 46%, a notable decrease from the prior period’s 50.1%, primarily due to memory expenses.
Excluding tariff refunds, the gross margin slipped approximately one percentage point from the June quarter.
Performance Metrics of Key Companies
| Company | Phone-linked Metric | Latest Quarter | Year-over-Year Change |
|---|---|---|---|
| Apple | iPhone Revenue | $57.6 Billion | +17% |
| Qualcomm | Handset Chip Revenue | ~$5.1 Billion | -26% |
| Corning | Glass Innovations Segment Sales | ~$1.5 Billion | -3% |
| Arm | Royalty Revenue | $670 Million | +8% |
Note: Apple’s figures correspond to the fiscal fourth quarter ending September 26; Qualcomm’s indicators represent the period ending September 27; Corning and Arm’s metrics are aligned with the September quarter.
Industry Dynamics and Future Outlook
Qualcomm’s dwindling revenue is indicative of broader market trends, as it announced that various prominent phone manufacturers have revised their production plans downward due to heightened memory prices.
Moreover, Apple is anticipated to predominantly utilize its in-house modems, a strategic shift that could further diminish Qualcomm’s chip sales.
In response, licensing agreements have become increasingly vital, with patent royalties yielding a substantial 70% pre-tax margin in the latest quarter, in stark contrast to the 24% margin from chip sales.
Corning’s association with the iPhone largely revolves around its cover glass supply. Chief Financial Officer Ed Schlesinger unveiled plans for their Kentucky facility to handle all cover glass production for iPhones and Apple Watches by the conclusion of 2026.
Yet, the company’s glass innovations segment experienced a 3% sales dip, totaling roughly $1.5 billion, alongside a 10% decline in net income.
Conversely, its optical communications division flourished, reporting a remarkable 44% revenue increase to approximately $2.4 billion, with generative AI-related sales more than doubling.
At Arm, royalties from smartphone processors constituted about 43% of its overall revenue for the fiscal year concluded March 31.
The latest quarter saw royalty revenue decline to $670 million from $715 million three months prior, despite reporting an 8% year-over-year increase, as the ramifications of rising memory prices hampered phone demand.
The company remains optimistic, projecting that Arm-based chips will dominate over 60% of the server market among leading cloud providers by the end of 2026.
Market Reactions and Investment Implications
The divergence in performance extends beyond smartphones. AMD recently announced its third-quarter revenue at $13.4 billion, marking a 45% increase and setting a quarterly record, largely propelled by data center revenue soaring to $8.5 billion—nearly double compared to the previous year.
The company forecasts fourth-quarter revenue to approach $17 billion, significantly surpassing market expectations.
Amid fluctuating investor sentiment, the sector is being scrutinized for its ability to convert robust AI expenditures into meaningful revenue and profits.
Strategist Parag Thatte from Deutsche Bank revisited his ratings on technology stocks, indicating a shift from an elevated stance to neutral as the industry navigates within the lower bounds of its long-term trend channels.
For Apple, the pressing question remains whether it can sustain a premium valuation amidst shrinking margins.
At approximately $347, the stock trades at nearly 36 times anticipated fiscal 2027 earnings. David Bahnsen, Chief Investment Officer at Bahnsen Group, contends that Apple operates more akin to a consumer-oriented entity compared to infrastructure firms, thereby enhancing its appeal as investors seek stability among large-cap stocks.
In contrast, Qualcomm, valued around $150, trades at roughly 15 times expected fiscal 2027 earnings, a figure seemingly reflective of anticipated contractions in the handset market.
Corning, priced near $104, possesses a valuation multiple of about 23 times the forthcoming year’s earnings, while Arm, at approximately $166, trades at about 55 times its anticipated fiscal 2028 earnings, a premium primarily driven by aspirations in data centers rather than mobile devices.
The overarching narrative shows that soaring memory prices now serve as a critical determinant affecting the entire handset ecosystem.
For Apple, which maintains control over its retail pricing and raised iPhone costs in September, these expenses can be redistributed to consumers, albeit at a sacrifice to gross margins.
Meanwhile, component suppliers, whose revenues are largely contingent on unit sales, more directly feel the impact of rising input costs, which can translate into lost sales.
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