Apple's inventory saw a substantial increase in its fiscal fourth quarter, rising 31.1% from $11.09 billion in Q3 to $14.54 billion, reflecting a 154.3% jump compared to the same period last year. This surge is largely attributed to the company's efforts to stockpile memory chips amid unprecedented cost increases in the component market. CEO John Ternus highlighted that memory chip prices have escalated significantly, affecting their gross margin outlook, with the company projecting a 45% to 46% margin for the December quarter, down from 47.9% reported in September.

The rising memory chip costs are driven by soaring demand, notably from the AI industry, which has led Apple to increase its manufacturing purchase obligations by $33 billion between June and September. While Apple has raised device prices on products like the Mac, iPad, and iPhone to counterbalance these expenses, the company expects memory costs to continue climbing. COO Sabih Khan emphasized the company's increased purchasing commitments but did not rule out further price hikes for Apple products.

In addition to inventory and cost challenges, Apple reported supply constraints impacting its product sales, especially the iPad. While iPhone and Mac sales outperformed expectations, iPad revenue declined 10% year-over-year to $6.2 billion, missing analysts' estimates. These supply issues resulted in weaker iPad performance during the quarter as the company navigates both manufacturing and memory chip challenges.

The company also faces ongoing supply and demand imbalances with the highly anticipated iPhone Duo, a new foldable device that has experienced significant shipping delays. COO Sabih Khan acknowledged the uncertainty around when supply will meet demand, with shipping estimates now extending into 2027. To address production needs, Apple is strengthening partnerships with suppliers like Perryman for titanium components. Despite these headwinds, CEO John Ternus reaffirmed Apple's commitment to delivering innovative products and improving supply chain conditions as swiftly as possible.