Apple is bracing for a period of slower services growth during the crucial holiday quarter, a transition coinciding with the heavy cloud-computing costs associated with powering Siri AI. As the tech giant absorbs these expanding operational expenses, leadership has confirmed plans to eventually charge customers for expanded access to high-demand artificial intelligence capabilities.
Speaking during his very first earnings conference call as Apple’s chief executive officer, John Ternus outlined the company’s strategic roadmap for paid access when responding to an analyst’s question regarding iCloud+ and the broader rollout of Apple Intelligence.
"There are going to be some usage limits on features that rely on server-side models, which include Siri AI and intelligent photo editing, some other things like that," Ternus explained during the call. He added that "anyone who needs greater capacity will be able to purchase expanded access in the future."
Apple has not yet disclosed specific pricing structures or an official launch date for these paid AI tiers. However, Ternus noted that iCloud storage subscription tiers have progressively evolved far beyond simple cloud storage to bundle comprehensive lifestyle offerings, pointing to existing plans that seamlessly integrate media services like Apple TV and Apple Arcade.
The fiscal financial results for the September quarter showed robust performance overall, with services revenue increasing by 10% to reach $31.6 billion. Key revenue drivers included video, cloud services, payments, and advertising, all of which touched new all-time records. Furthermore, total active subscriptions across the entire Apple platform surpassed the milestone of 1.5 billion, maintaining a healthy double-digit growth trajectory.
Despite this momentum, Chief Financial Officer Kevan Parekh forecast a more conservative services growth rate of 8% to 9% for the upcoming December quarter. Parekh attributed this sequential pressure primarily to headwinds from third-party licensing agreements and foreign exchange fluctuations.
Investor reaction was swift, with Apple shares falling roughly 4% in after-hours trading following the conference call on Monday (Nov. 2), where executives laid out the detailed services and margin forecasts.
App Store performance remained largely steady compared to the previous year, according to Parekh, though third-party paid subscriptions continued to expand at a double-digit pace. Management also highlighted that the platform continues to attract immense traffic, reporting more than 1 billion average weekly visitors globally.
At the same time, Parekh pointed to persistent softness in mobile gaming, ongoing adjustments to the App Store business model in select international jurisdictions, and the financial impact of a U.S. court ruling regarding transactions conducted through external web links. Management expects the prevailing weakness in mobile gaming to extend into the December quarter.
On the payments front, recent developments included the long-awaited launch of Apple Pay in India in partnership with Axis Bank, which expanded the mobile payment service’s footprint to more than 90 global markets. Parekh also highlighted major enterprise adoption, noting American Airlines’ recent deployment of more than 37,000 iPhones to flight attendants to facilitate seamless in-flight purchases utilizing Tap to Pay technology.
Siri’s Capabilities and Costs
During the question-and-answer session, financial analysts pressed Ternus on how the revamped Siri assistant plans to compete against emerging consumer AI agents, and whether those sophisticated agents might fundamentally alter Apple’s direct relationship with its consumer base.
"It’s primarily request-based today, but as we talked about at WWDC, it’s built on a modern orchestrated-driven architecture that gives us real room to expand its capabilities over time," Ternus noted to the analysts in attendance.
He emphasized that Apple is maintaining a strict focus on core principles of security, privacy, and ensuring that individual users retain clear visibility and understanding regarding what personal information they allow third-party or internal agents to access.
Ternus described the iPhone as an unmatched repository of personal context for Siri, safely aggregating crucial data including contacts, communications, health metrics, and financial records. This ecosystem leverage is backed by an active installed base spanning more than 2.5 billion active devices worldwide.
The reimagined Siri AI initially debuted as a U.S. English beta in September before expanding its linguistic capabilities to French, Japanese, Korean, Portuguese, and Spanish in October. Company management explained that user requests will be processed through a hybrid approach, running locally on devices as well as through Private Cloud Compute infrastructure.
Parekh noted that Apple is still actively evaluating the exact operational mix of these local versus cloud requests and their corresponding computing requirements. Consequently, server inference expenses will be recorded under services cost of sales. In addition, Apple plans to defer a portion of its hardware revenue recognition to appropriately account for Siri AI features bundled directly with new device purchases.
Looking at enterprise applications, management pointed to growing commercial uses of on-device artificial intelligence. Retailer Gap is currently utilizing loss-prevention AI running locally on Mac Mini hardware across hundreds of physical retail stores, effectively eliminating recurring cloud token costs, according to Parekh. Similarly, auction house Christie’s is deploying local machine learning models on Mac Studio workstations to streamline daily productivity work, including advanced art pricing estimates.
Apple’s broader hardware revenue reported mixed results across its major product categories for the quarter. iPhone sales grew by 17% to reach $57.6 billion, while Mac revenue experienced a significant jump of 24% to total $10.8 billion. Conversely, iPad revenue saw a decline of 10%, and the Wearables, Home, and Accessories segment dropped by 8%.
Geographically, performance in Greater China stood out with revenue increasing by 21% to hit $17.5 billion, propelled primarily by robust demand for iPhones and Mac computers.
Chief Operating Officer Sabih Khan addressed hardware supply chain dynamics, noting that the newly introduced foldable iPhone Duo remains heavily supply-constrained. While advanced semiconductor manufacturing constraints are gradually easing, Khan warned that ongoing tightness in memory component availability will actively restrict Mac and iPad shipments throughout the December quarter.
To help mitigate rising input expenditures, Apple instituted price increases on Mac and iPad models in June, followed by adjustments to the iPhone lineup in September. Ternus explained that these strategic price hikes have partially offset higher memory component costs, aided further by existing inventory buffers and declining costs across other hardware components.
For the upcoming December quarter, Apple has issued financial guidance projecting total revenue growth between 7% and 10%, alongside expected gross margins of 45% to 46%. Management anticipates that rising memory component costs will account for the vast majority of the sequential margin decline, accompanied by incremental expenses tied directly to the ongoing rollout of Siri AI infrastructure. Parekh affirmed that capital investments in artificial intelligence will continue moving forward, even as operating expenses are projected to grow at a slower pace than they did throughout fiscal 2026.
