Under the banner of Huaxia, Apple’s target price was lowered: Chip price increases may cause gross margin to fall by 100 basis points this year.

Under the banner of Huaxia, Apple’s target price was lowered: Chip price increases may cause gross margin to fall by 100 basis points this year.

Citibank’s latest report has lowered Apple’s target price from $330 to $315 per share. The report points out that surging storage prices will directly squeeze Apple’s profit margins, and its gross margin in 2026 is expected to face significant downward pressure.

According to ZF Trading Desk, the bank’s model shows that the average selling prices (ASP) of DRAM and NAND flash memory in 2026 will increase by 88% and 74% year-on-year, respectively. If Apple faces a 50% increase in DRAM procurement prices, its gross margin in 2026 is estimated to suffer about 100 basis points of downward pressure.

The report notes that although rising memory chip prices will directly squeeze profits, Apple’s positioning in the high-end market and supply chain bargaining power will mean it is less impacted than most Android manufacturers. Looking further ahead, upgrades to Siri’s AI and the anticipated launch of the first foldable iPhone in the second half of 2026 are expected to be new growth drivers for the company.

iPhone demand remains resilient; high-end positioning provides a buffer

The Citibank research report points out that its cooperation analysis with its internal research innovation lab shows demand for iPhone 17 will remain strong at the end of 2025, with a normal seasonal correction expected in the March quarter. According to the model, Apple’s iPhone shipments for the December quarter and the March quarter are expected to be 82 million and 56 million units, a year-on-year increase of 45% and a decrease of 32%, respectively, outperforming market expectations of 41% growth and 34% decline.

Facing the current environment of sharp memory price increases, Apple, thanks to its high-end market position and supply chain pricing power, is expected to have strong cost-passing ability. Citibank’s analysis believes that despite rising component costs, Apple’s iPhone shipments are still expected to grow by 1.2% in 2026, which is significantly better than the global smartphone market’s expected 5% overall decline. Historical data show that during the previous memory price surge cycle in 2017–2018, Apple’s gross margin came under about 110 basis points of pressure in September 2017 and 70 basis points in March 2018.

Third-party data also confirms Apple’s market performance. IDC’s preliminary statistics show that in Q4 2025, Apple shipped 81 million phones, a 5% year-on-year increase, raising its market share to 19.7% and its full-year shipment growth to 6.3%. Counterpoint’s report indicates Apple’s iPhone shipments in 2025 will grow by 10%, with market share reaching 20%, further solidifying its dominance in the high-end market.

Memory price surge brings significant cost pressure

The surge in memory chip prices has become the most concerning supply chain risk for investors. Citibank’s research model forecasts that the average selling prices of DRAM and NAND flash in 2026 will jump by 88% and 74% year-on-year, far exceeding any previous cycle of memory price increases.

Based on the material cost structure analysis, Citibank estimates memory accounts for about 9% of iPhone costs, and 15% in PCs and iPads. If Apple faces a 50% increase in DRAM procurement prices in 2026, its overall gross margin is expected to face about 100 basis points of downward pressure. According to supply chain research sources, Apple has basically completed price negotiations for 2026 NAND flash, but DRAM pricing remains uncertain.

Growth in services business and Gemini partnership confirmed

Sensor Tower’s latest data shows that Apple’s App Store revenue in the December quarter grew 7% year-on-year, lower than the company’s earlier guidance of about 14% overall services revenue growth. Notably, there has been a trend of deviation between Sensor Tower’s reported App Store revenue growth and overall services revenue growth for Apple in recent quarters.

Apart from the App Store (about over 30% of total services revenue), ad business (about 30%) and cloud services (about 10%) are also important growth engines for the services segment. Apple has about 2.5 billion active devices installed, and over 50% of users do not yet have a transaction account, laying a structural foundation for capturing incremental opportunities in high-margin services.

On January 12, Apple and Google released a joint statement confirming that Apple has chosen Google Gemini as a long-term partner to support its next-generation foundational model. The advanced AI-powered, personalized Siri is expected to be officially launched in spring 2026. According to Bloomberg, Apple may pay Google about $1 billion annually for this partnership. This collaboration will enable Apple to deploy a more powerful smart assistant at a faster pace while buying critical time for the company’s continued in-house model development.

iPhone 18 foldable phone to start a new product cycle

Industry sources indicate Apple is expected to launch its first foldable iPhone in the second half of 2026, likely appearing at the fall launch event alongside the iPhone 18 Pro/Pro Max models. Reportedly, this product, called “iPhone Fold,” will adopt a book-style (not flip-style) folding design, with a screen size of about 7.8 inches when unfolded (5.5 inches when folded). Thickness when folded is about 9–9.5 mm (4.5–4.8 mm when unfolded).

Analysts predict the device will use a liquid metal hinge and a metal plate structure to distribute stress, aiming for a virtually crease-free display. In terms of imaging, the device is expected to feature dual rear cameras and a front camera, possibly integrating Touch ID on the side to replace Face ID.

Given its expected premium pricing at around $2,000 and factoring in timing, Citibank expects the foldable iPhone’s shipments in 2026 to be about 8 million units, accounting for 3% of total iPhone shipments that year; by 2027 this number may rise to 20 million units. IDC previously forecasted that the foldable phone market would maintain a roughly 17% annual compound growth rate through 2029. Citibank believes that with its brand and technology advantages, Apple could quickly capture over 30% of the segment, significantly outperforming industry averages.

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