The fourth quarter of Apple's 2026 fiscal year marked a pivotal event as new CEO John Ternus hosted his first earnings call since taking office last September, joined by CFO Kevan Parekh and COO Sabih Khan. The results revealed a contrast between strong financial performance and ongoing technical and logistical challenges.
Sales Performance and Supply Challenges
Apple achieved record services revenue of $31.6 billion, with total annual services revenue reaching $123.3 billion. Conversely, the company faced supply constraints for iPhone, iPad, and Mac devices, which Sabih Khan attributed to high demand and limited availability of advanced nodes used in processor manufacturing, noting that these constraints have begun to ease with the transition to 2nm chips.
Ternus acknowledged the difficulty in meeting demand for the iPhone Duo, confirming minor display issues, while China registered notable growth of 21%, representing a quarterly record for the company in that region.
Artificial Intelligence and Memory Costs
The discussion touched upon economic challenges, with Ternus describing the memory cost situation as "unprecedented," with expectations of continued increases in the next quarter. To alleviate pressure, Apple implemented price increases during the year, alongside benefiting from lower costs for certain other components.
Regarding artificial intelligence, Apple confirmed plans to impose usage limits on server-side AI features such as Siri AI and photo editing, while providing options to purchase additional storage via iCloud+. Parekh explained that the company is still in the early stages of understanding the cost balance between on-device processing and cloud processing (Private Cloud Compute).
Why This News Matters
This report reflects Apple's strategy during a leadership transition phase, as the company focuses on balancing the integration of generative artificial intelligence technologies with maintaining user privacy as a competitive differentiator. The report also highlights how advanced component costs, especially memory, impact profit margins, and how the company is managing these pressures through the growing services sector.
The Future of Operating Systems
In response to questions about the possibility of merging iOS and macOS after adding touchscreen displays to MacBook Pro devices, Ternus emphasized that Apple has no plans to make fundamental changes, focusing instead on delivering the best version for each product while enhancing integration features like Handoff, denying any current trend toward unifying the operating systems.