The cost of memory has become the "Sword of Damocles". UBS Group AG maintains a "neutral" rating for Apple Inc. (AAPL.US).

UBS Group AG released a research report, maintaining a "Neutral" rating on Apple Inc. (AAPL.US) with a target price of $280. Despite Apple Inc. preparing to deliver fourth quarter earnings in December 2025 that are far above market expectations, UBS Group AG pointed out that behind the impressive iPhone sales figures, the continuously rising memory costs and risks to gross profit margin in the second half of the year are becoming the sword of Damocles hanging over Apple Inc. Led by the iPhone 17, performance in the December quarter may exceed expectations The market response to the iPhone 17 series has been exceptionally strong, with UBS Group AG estimating that revenue from iPhone sales in the fourth quarter of 2025 (the first quarter of Apple Inc.'s fiscal year 2026) will reach approximately $79 billion, a year-over-year increase of about 14%, higher than the previously expected $77.58 billion and the market consensus of $78.5 billion. Thanks to a higher-end model lineup, the average selling price is expected to increase to around $930. This has led the bank to have an optimistic outlook on their performance during the quarter. This better-than-expected performance is mainly attributed to two factors: the upgrade in technical specifications of the iPhone 17 driving market demand, and in the background of significant increases in memory costs (DRAM and NAND), Apple Inc. may have deployed production earlier to lock in costs, resulting in a slight shift in sales volume within the quarter. Therefore, UBS Group AG expects earnings per share for the quarter to reach $2.70, slightly higher than their previous forecast of $2.66. The high memory costs remain a looming threat Good news has not completely alleviated UBS Group AG's concerns. The core issue lies in the significant escalation of prices for NAND and DRAM memory. Through analysis and estimation, UBS Group AG determined that memory previously accounted for 8% to 10% of the iPhone's bill of materials (BOM) cost, averaging about $50 per phone. Although Apple Inc. successfully avoided cost impacts in the December quarter due to their strong supply chain relationships and early signed supply agreements, the risk has gradually shifted to the second half of 2026. UBS Group AG warns that as production of the new generation iPhone ramps up, gross profit margins in the June and September quarters may face downward pressure of 50 to 100 basis points. UBS Group AG expresses concerns regarding their guidance for gross margins of 48.0% in June and 47.8% in September. While the profit margins for high-end models are larger and can partially absorb cost increases, profit dilution is inevitable in the fiercely competitive low-end market. For the upcoming March quarter, UBS Group AG has provided a cautious guidance. They expect total revenue to be approximately $102.9 billion, an 8% year-over-year increase, lower than the market expectation of $104.9 billion. Due to the phenomenon of "early shipment" in the December quarter, iPhone demand in the March quarter may experience seasonal weakness, with revenue expected to be $50.1 billion.