Tim Cook's Last Call at Apple Ends with Record Revenue, Services Miss, and Warning of "100-Year Flood" in Memory
Apple reports a record $109.4 billion but services fall short as shares drop 6% following weak guidance. Cook highlights memory price shock and hands the reins to John Ternus on September 1.
Apple concluded its third fiscal quarter of 2026 with revenue of $109.4 billion, a 16% year-over-year increase, and diluted earnings per share of $2.02, surpassing consensus estimates of $1.89. This quarter will also be the last with Tim Cook leading the earnings calls: as of September 1, the CEO position will officially transition to John Ternus, the current Senior Vice President of Hardware Engineering, a change announced by the company on April 20. Cook will continue as Executive Chairman, focusing on global regulatory dialogue.
The results are a mix of record highs and cautionary signals. The iPhone generated $56.99 billion in revenue, with double-digit growth, while the Services segment reached nearly $30.7 billion, falling short of the expected $31.22 billion. Greater China contributed $18.8 billion, a 28% year-over-year growth but also below analysts' projection of $19.5 billion. The gross margin came in at 50.1%, bolstered by about 2 percentage points from tax refunds related to tariffs. The EPS carries an additional $0.11 from the same effect. None of this managed to support the stock, which fell 6.3% in after-hours trading to $312.30, as the company guided the fourth quarter for revenue growth of 9% to 11% and a gross margin of 47% to 48%.
Memory Becomes the Villain of the Next Quarter
The factor behind the revised guidance was explicitly named. Cook described the current memory price movement as "a 100-year flood," referencing the simultaneous demand surge for HBM and DDR5 driven by AI capital expenditures from hyperscalers. CFO Kevan Parekh emphasized that the impact of supply constraints will significantly increase sequentially and acknowledged that Apple was forced to pass along costs on iPad and Mac lines, something the company typically avoids. The forecast of gross margin contraction directly reflects this trend.
The connection to the suppliers' earnings week is clear. Samsung closed its second calendar quarter with $59 billion in operating profit and warned that the memory crunch will extend until 2028. SK Hynix reported a 76% operating margin. While the Koreans capture premiums, device manufacturers must absorb or pass on costs. Apple has the scale to negotiate better than average, but admitted it lost this battle this cycle.
Cook’s AI Angle and Ternus's Message
The discussion on artificial intelligence gained depth during this call. Cook confirmed that Apple is evaluating higher-tier iCloud plans as a way to monetize advanced AI features and stated that the company is working with regulators in Europe and China to expand Siri with generative AI. Ternus, present on the call, defined AI as a "massive opportunity" and asserted that Apple remains focused on its own plans, a signal that analysts interpreted as a refusal to accelerate external partnerships similar to what Microsoft, Amazon, and Meta have been doing with OpenAI, Anthropic, and Mistral.
Apple’s capital-light strategy gains coherence when compared against the week’s numbers. Meta guided capital expenditures for 2026 between $130 and $145 billion, Amazon increased to $220 billion, and Microsoft clocked in $41 billion just last quarter. Apple operates without its own training data centers on a comparable scale, outsources inference when relevant, and capitalizes on its installed base. This is the same thesis that Warren Buffett has historically praised, but it requires validation amid the current race. The 6% drop in stock suggests that the market wants to see, at a minimum, clear execution of Siri AI and monetization of premium iCloud before judging the strategy.
Ternus Inherits Three Key Issues
The next CEO inherits a landscape with four open fronts. The first is regulatory, with ongoing pressure from the European Union regarding the App Store and commissions, as well as antitrust investigations in the United States. The second is China, a market that has returned to growth but where competition from domestic players like Huawei and Xiaomi remains challenging. The third issue involves AI in Portuguese, German, and Mandarin, with no set deadline for generative Siri in various markets. The fourth, a new development from this call, is the pass-through cost of memory, a concern affecting iPhone, iPad, Mac, and possibly the headset line. Cook leaves the position with record results in hand, but with an agenda that will likely not allow for a honeymoon period for his successor.