Ternus Gets a Cool Reception on His First Apple Earnings Call
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John Ternus spent his first two months as Apple's CEO showing off new products. On Monday he met Wall Street for the first time on an earnings call, and the stock fell after hours despite a beat.
Good quarter, worse outlook
Apple topped expectations for the September quarter, and iPhone sales for the month set a record. Investors still sold, citing the margin outlook and slowing growth in Services. Memory chips are in short supply, and Ternus called the pricing "unprecedented". He added that the company expects memory costs to keep rising beyond the December quarter.
Apple guided gross margin for December to 45%-46%, down from 47.9% in September. That quarter had received roughly a one-point lift from tariff refunds. The company blamed the decline on memory costs and the cost of ramping up Siri AI. Fortune says Apple has raised its own prices to offset higher chip costs and leans on its large base of existing users.
Siri and Services draw questions
Analysts asked about the roadmap for the revamped Siri AI, and Ternus and CFO Kevan Parekh gave few details. Asked about consumer AI agents such as Meta's Muse, Ternus said Siri is mostly request-based today but sits on an architecture that can grow. He called agent features promising and stressed security and privacy.
Fortune notes that reviews of the new Siri are mixed and that it trails the leading chatbots from OpenAI and Anthropic. Investor Gene Munster wrote that Apple does not want to talk about personalized agents, which he sees as the biggest risk to its ecosystem.
On slowing Services growth, the executives pointed to an installed base above 2.5 billion devices. They said it will bring future ways to earn money. They also said AI features processed off the device will have usage limits, and iCloud plans, until now sold mainly by storage size, will be reshaped.
Hardware and China
Ternus unveiled the foldable iPhone Duo in early September. Demand is strong and orders are backed up, though some units had cracked screens that Apple is replacing. New orders will not arrive until the end of January. Chief operating officer Sabih Khan said it is "really hard to predict when supply and demand will be in balance". Yorkville Ives analysts expect roughly 10 million Duos over the next few quarters.
Sales in Greater China rose 21% from a year earlier but missed Bloomberg estimates by $1 billion. Apple plans AI features for iPhone users there after a deal with Alibaba, though not a full Siri AI experience.
A change in format
Ternus passed several answers to Parekh and Khan. Apple said both will join earnings calls from now on, which the company has not done for years. Fortune found his delivery confident but mostly scripted, which subdued the conversation.
Our view
The new CEO inherits a business that is strong on sales and squeezed on costs. The format change moves detail-heavy questions toward the CFO and COO. Whether memory prices ease, and whether Siri AI improves quickly enough to answer the agent question, will decide how long the cooler mood lasts.
Source: Fortune