Why Apple stock is down after hours: a 45% to 46% margin guide

Apple stock is down after hours because of the outlook, not the quarter. Apple reported record September-quarter results on November 2, then guided to a gross margin of 45% to 46% for the December quarter, with higher memory costs and Siri AI costs weighing on it. That is a lower margin than the 47.9% it just posted, according to Apple's earnings release and the CFO's comments on the call.

The shares fell as the call went on. Our earnings report on the quarter has the full numbers. This article covers what moved the stock.

How far Apple stock moved after hours

Apple closed the regular session at $338.32 at 4:00 p.m. ET on November 2, down 1.83% from $344.63, according to Yahoo Finance. The company filed its 8-K with the results at 4:30 p.m. ET.

In the overnight session on the Blue Ocean ATS trading venue, Yahoo Finance showed the stock at $328.82 at 9:49 p.m. ET, down 2.81%. That is a thin, off-hours market, and prices there move more than in the regular session.

9to5Mac reported that the stock first rose about 0.5% to $340.00 after the release, then reversed during the call and fell as much as 4.43% to $323.33 at the low, before recovering to $328.81.

Why Apple stock is down: the December outlook

Apple's release gives no forecast. The outlook came from CFO Kevan Parekh on the call, as transcribed by Six Colors and summarized by 9to5Mac. For the quarter ending in December, Apple expects:

• Revenue up 7% to 10% from a year earlier, which Parekh said should be the best quarter for revenue in the company's history.
• Services revenue up 8% to 9%.
• Gross margin of 45% to 46%.
• Operating expenses of $20.4 billion to $20.8 billion.

The revenue guide is strong. The margin guide is lower than the quarter just reported. 9to5Mac ties the after-hours drop to the mixed outlook of record revenue, slower growth, lower margins and continued Mac and iPad shortages, and says analysts asked about memory costs and iPhone Duo supply. Apple does not comment on its share price, and the stock turned lower while the call was under way.

Memory costs and Siri AI costs

Most of the expected margin decline comes from memory, Parekh said in answer to an analyst. CEO John Ternus called current memory pricing "unprecedented" and said Apple expects memory costs to rise further in the December quarter and beyond. Apple's purchase obligations with manufacturers rose $33 billion from June to September, he said.

Siri AI adds a second cost. Parekh said the cloud costs of server-side Siri queries are recorded in services cost of sales, so they will weigh on services margin as the rollout grows. Queries that run on the device carry essentially no extra cost. He also said the split between the two is still unclear. Hardware revenue deferrals will reflect Siri AI from the December quarter, which spreads part of each device sale over later periods.

Supply limits on iPhone Duo, Mac and iPad

COO Sabih Khan said the iPhone Duo "is constrained as of today" and that it is hard to say when supply and demand will balance. For the December quarter, he said Apple expects constraints on Mac and iPad, mainly because of memory, since demand is higher than Apple expected. Apple's revenue range reflects what it calls its best view of constrained supply.

Services growth is slowing

Services grew 10% to $31.6 billion in the September quarter, a record. The December guide of 8% to 9% is slower. Parekh pointed to foreign exchange as the main reason for the change in growth rate, expects mobile gaming headwinds to continue, and noted a U.S. court ruling affecting link-out transactions in the App Store.

What to watch

Regular trading in Apple opens on November 3, and the overnight prices above are not a forecast of it. Apple pays its $0.27 dividend on November 16 to holders of record on November 12. Apple gave no outlook beyond December.