By Daniel Howley

Apple (AAPL) reported its third quarter earnings on Thursday, beating analysts' expectations on the top and bottom lines on strong iPhone sales, but shares fell after Services and Greater China sales came up short.

Apple stock fell more than 7.6% in premarket trading on Friday as investors assessed the report.

For the third quarter, Apple saw earnings per share (EPS) of $2.02 on revenue of $109.4 billion, ahead of the $1.89 EPS and $108.8 billion in revenue analysts were anticipating.

Apple reported EPS of $1.57 and revenue of $94 billion in Q3 2025.

Apple's iPhone revenue hit $54.2 billion versus expectations of $53.5 billion. Sales were $44.5 billion in the same quarter last year.

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Services, Apple's second-largest business, brought in $30.7 billion versus projections of $31.3 billion. Greater China revenue was $18.8 billion, shy of analyst estimates of $19.5 billion.

While Apple's stock has outperformed its Big Tech peers, the Cupertino, Calif.-based company is still facing its own AI-induced headache: rising memory and storage costs, thanks to the global AI build-out.

That has driven the company to raise prices on its Macs and iPads, though the iPhone has been spared at least for now. Apple is widely expected to boost prices of its next-generation iPhones when it unveils the lineup at its annual showcase in September.

According to Jefferies analyst Edison Lee, the increases in memory prices could pressure Apple's iPhone margins going forward. 

"We estimate the memory cost would rise further in [the second half of 2026], and assuming similar price hikes with iPad (except the 512GB version, where we assume a US$300 price hike vs 200 for iPad), the incremental [gross margins] would only be 21%. That could reduce the overall iPhone GM from 38% to 34.5%," Lee wrote in an investor note.

But Brandon Nispel of KeyBank Capital Markets sees a potential iPhone price increase as a far larger issue for Apple than simply an impact on gross margins.

"With [Apple] providing a safe haven to the sell-off in semis, we think they are missing the bigger picture, which squarely fits our thesis: as [Apple] raises iPhone prices, unit growth will slow, and as unit growth slows, so will user growth, which we think ultimately will slow Services growth," Nispel wrote in a note to investors.

But Apple's new Apple Upgrade service, which was announced Tuesday and allows customers to lease devices from iPhones to Macs, could help address those concerns.

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All of this will fall on incoming CEO John Ternus, who will take over from Tim Cook beginning Sept. 1. Thursday's earnings will be Cook's last in the position.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on X at @DanielHowley.