Citi analysts say Apple faces near-term margin pressure from rising memory costs, prompting the bank to reduce its earnings forecasts for the back half of 2026. The firm singled out a significant surge in DRAM prices as the primary driver of the revisions.
Analyst Atif Malik wrote that, although Apple is in a stronger position than most smartphone makers to absorb component cost increases, the escalation in memory pricing will still exert "incremental pressure on gross margin." Citi quantified the impact as a 140 basis-point headwind to gross margin in calendar 2026, with an additional 48 basis points of downside projected for 2027 tied to sharply higher DRAM costs.
The bank models assume a 50% rise in DRAM prices in the second quarter of 2026 and a 100% increase in the second half of the year, with most of this surge easing in 2027. To reflect those cost assumptions, Citi trimmed its fiscal 2026 earnings-per-share estimate by $0.06 and its fiscal 2027 estimate by $0.04, while leaving the 2028 outlook unchanged.
Despite the earnings adjustments, Citi reiterated its Buy rating on the company and kept its $315 target price intact. The bank also left its iPhone shipment projections unchanged, forecasting unit growth of 1.3% in 2026 and 5.9% in 2027 - roughly 246 million and 262 million units, respectively.
Malik noted that Apple could be relatively advantaged in this environment, as larger vendors generally have more flexibility to manage component-cost volatility. "Larger vendors such as Apple can navigate the situation better and could seize the opportunity to gain market share," he wrote, suggesting Apple might outperform peers that face greater margin erosion.
Citi flagged a broader industry backdrop of weakness for the global smartphone market, attributing softness in part to memory supply constraints and higher memory prices. The industry forecasts cited by the bank indicate global smartphone shipments may decline in 2026 before staging a modest recovery in subsequent years.
To counteract the headwinds, Malik highlighted several levers Apple can deploy, including pricing adjustments and changes within its bill of materials. The company has already increased prices on certain MacBook models while keeping prices steady on specific iPhone configurations to stay competitive amid softer demand.
Beyond hardware, Citi pointed to Apple’s services businesses and progress on AI initiatives as important offsetting factors. The bank noted Apple’s partnership with Google’s Gemini technology, which is expected to underpin a significant Siri upgrade later this year, and emphasized that services growth benefits from an installed base of roughly 2.5 billion active devices.
Context and implications
- The immediate financial impact is a modest reduction to near-term EPS estimates for fiscal 2026 and 2027, reflecting DRAM-driven gross margin pressure.
- Apple’s product strategy and pricing decisions, along with services and AI initiatives, are cited as potential mitigation paths against hardware margin compression.
- The wider smartphone sector and semiconductor suppliers are directly affected by memory supply constraints and price volatility, contributing to a softer market outlook for 2026.
What remains uncertain
- The extent and duration of DRAM price movements beyond Citi’s assumptions - the bank expects most of the surge to ease in 2027, but the magnitude of that normalization is a key variable.
- How competitors will respond to rising component costs and whether Apple’s relative advantage will translate into measurable share gains in a weak market.