Apple posts 22% iPhone growth, warns supply constraints will intensify amid AI expansion

The Ninth Circuit ruled on Apple's appeal of the Epic Games injunction in December 2025. The appellate court partially upheld the injunction but granted Apple significant relief: the company can now require parity in presentation between in-app and external purchase links, and can charge commissions on link-out purchases. The case was remanded for further modification of the injunction consistent with these findings.

The baseline filing disclosed that the district court referred Apple to the U.S. Attorney for potential criminal contempt proceedings. This disclosure has been removed from the current filing, suggesting either the referral was resolved, declined by prosecutors, or superseded by the appellate court's December 2025 ruling that modified the injunction terms.

Apple's appeal of the €500 million DMA fine has moved from planned to filed. The current filing confirms the appeal was actually lodged, removing the conditional "plans to appeal" language. The baseline's note that the order remains effective pending appeal (unless stayed) has been dropped, likely because that procedural detail is now understood or no longer requires emphasis.

The baseline disclosed two DMA investigations opened March 25, 2024, including Article 6(3) concerning default settings and browser choice screens. The current filing mentions only the Article 5(4) investigation in the opening sentence. The baseline separately noted that Article 6(3) was closed without a fine on April 23, 2025; the current filing omits all Article 6(3) references, reflecting that the closed investigation no longer requires ongoing disclosure.

The baseline provided detailed procedural history of Apple's compliance efforts and motion to narrow the 2021 injunction. The current filing removes this entire narrative, likely because the appellate court's December 2025 ruling superseded these lower-court procedural steps and rendered the compliance plan and motion to narrow moot or irrelevant to the current legal posture.

The baseline included a forward-looking statement emphasizing vigorous defense of both the company's actions and its employees, explicitly mentioning the planned appeal. The current filing omits this language entirely, likely because the appeal has been resolved and the December 2025 appellate ruling provides a more favorable legal framework that reduces the need for defensive rhetoric.

Apple disclosed new supply constraints for advanced semiconductors, NAND storage, and DRAM memory, with an expectation that these trends will intensify. This is a forward-looking warning about potential adverse impacts on demand, revenue, costs, and gross margin that was not present in the prior quarter's filing.

Apple updated the Section 232 semiconductor investigation status, reporting that initial results published in January 2026 did not impose additional tariffs on its products. Additionally, Apple disclosed a favorable U.S. Supreme Court ruling in February 2026 that struck down certain prior tariffs, and the company is now seeking refunds for tariffs already paid. These are material positive developments reducing tariff exposure.

Apple disclosed that tariffs have been imposed under a new legal authority (Section 122 of the Trade Act of 1974) not mentioned in the baseline filing. This expands the range of tariff mechanisms the company faces and signals ongoing regulatory uncertainty around trade policy.

Greater China net sales surged 28% in Q2 2026 and 33% for the first six months, a dramatic reversal from the prior year when the region declined 2% in Q2 2025 and 7% for the six-month period. This represents a major turnaround in Apple's second-largest geographic market, driven by higher iPhone sales.

iPhone revenue growth accelerated sharply to 22% in Q2 2026 (from 2% in Q2 2025) and 23% for the six-month period (from flat in the prior year). The company attributes this to higher sales of Pro models, indicating strong demand for premium devices.

R&D spending jumped 34% in Q2 2026 and 33% for the six-month period, driven by higher infrastructure-related costs and headcount expenses. This is a significantly faster growth rate than the prior year and signals increased investment in product development and infrastructure, likely related to AI and new product categories.

Products gross margin percentage improved to 38.7% in Q2 2026 (from 35.9% in Q2 2025) and 39.9% for the six-month period (from 37.9%), driven by favorable product mix and currency tailwinds, despite higher costs. This reverses the margin compression trend seen in the prior year.

The effective tax rate rose to 17.5% in both Q2 2026 and the six-month period, up from 15.5% and 15.0% respectively in the prior year. Apple attributes this to changes in unrecognized tax benefits and the impact of foreign currency loss regulations issued in December 2024.

Manufacturing purchase obligations increased from $38.4 billion to $44.6 billion, a 16% increase year-over-year. This signals higher committed spending with suppliers, likely reflecting both increased production volumes and higher component costs amid the disclosed supply constraints.

Apple disclosed a new category of contractual obligations totaling $30.4 billion for supplier arrangements, IP licensing, content, distribution rights, and manufacturing capital assets. This was not broken out separately in the prior filing and provides additional visibility into the company's committed spending.

The prior filing disclosed a $15.4 billion payment to Ireland that fully settled the State Aid Decision obligation. This one-time event is no longer referenced in the current filing, as expected after settlement completion.

Apple disclosed it paid the final $8.8 billion installment of the deemed repatriation tax from the 2017 Tax Cuts and Jobs Act during the first six months of 2026. This completes a multi-year payment obligation and removes a significant future cash requirement.

Remaining buyback authorization increased from $40.8 billion to $63.8 billion as of quarter-end, and the Board authorized another $100 billion program in April 2026 (similar to the $100 billion authorized in May 2025). The higher remaining balance suggests slower repurchase activity in the current period compared to the prior year.

Apple raised its quarterly dividend by $0.01 to $0.27 per share, continuing its annual dividend increase policy. This represents a 3.8% increase, consistent with the company's commitment to return capital to shareholders.

Share repurchases declined sharply to $11.0 billion in Q2 2026 from $25.0 billion in Q2 2025, a 56% reduction. This slower pace of buybacks may reflect capital allocation priorities shifting toward other uses or management's view of share valuation.

Apple disclosed a new accounting standard (ASU 2025-06) issued in September 2025 that changes how internal-use software costs are capitalized, effective in fiscal 2029. This could affect how the company accounts for software development expenses, particularly relevant given the 34% surge in R&D spending.

The prior filing disclosed an upcoming segment reporting standard (ASU 2023-07) to be adopted in Q4 2025. This reference is absent from the current filing, likely because the adoption occurred between the two periods and is no longer a pending change.

Apple launched six new or updated products in Q2 2026, including the iPhone 17e, MacBook Neo (a new product line), and AirPods Max 2. The MacBook Neo trademark suggests a new Mac category, and the broader product refresh cycle may have contributed to the strong revenue growth.

Apple now explicitly warns that AI technologies are accelerating cyberattack sophistication through automated vulnerability discovery, deepfake authentication bypass, and highly targeted phishing. The disclosure also flags systemic risks from AI-enabled attacks, including cascading infrastructure failures and market stability disruptions. This represents a material escalation in disclosed cyber risk beyond traditional threat vectors.

Apple now discloses specific court dates and remedies from the Google antitrust case, including a September 2025 D.C. District Court order. The company explicitly warns that DOJ-proposed remedies could prohibit Google from offering commercial terms for search distribution, which would materially impact Apple's licensing revenue. This is a concrete, dated development with direct revenue implications for a significant income stream.

Apple added an entirely new risk factor dedicated to AI, cataloging risks across competition, ROI recovery, product liability, IP infringement, privacy, cybersecurity, export controls, harmful content exposure, bias, discrimination, and minor safety. The disclosure acknowledges that despite responsible development commitments, the company may fail to identify or resolve AI issues before they materialize, exposing Apple to regulatory action and legal liability.

Apple now discloses exposure to emerging online safety laws requiring enhanced minor protections and mandatory age verification. The company warns these obligations may force significant product modifications, create operational disruptions, heighten privacy/security risks, and trigger liability and fines. This reflects a new regulatory compliance burden with direct product design and cost implications.

Apple expanded its product defect risk factor to explicitly call out AI features as increasing safety risks, including user exposure to harmful or inaccurate content. This ties AI deployment directly to product liability and user harm scenarios, elevating the materiality of AI-related defects beyond general software bugs.

Apple added language stating that AI features specifically increase the risk of inadvertent personal data disclosure. This connects AI deployment to heightened privacy breach exposure, suggesting AI systems may handle or process personal data in ways that elevate inadvertent disclosure risk beyond traditional data handling.

Apple updated its App Store commission litigation disclosure to reflect that the Ninth Circuit has instructed the California District Court to modify the injunction to allow Apple to charge a commission. This is a procedural development that could restore Apple's ability to collect fees on certain transactions, though the outcome remains uncertain and the company still faces material revenue risk if unsuccessful.

Apple removed detailed discussion of Q2 2025 tariff announcements, reciprocal tariffs, and the Section 232 semiconductor investigation. The baseline described these as newly-announced developments "beginning in the second quarter of 2025"; by Q2 2026, these are no longer new announcements. The current filing retains general tariff risk language in the gross margin section but drops the specific Q2 2025 tariff timeline and Section 232 investigation details. This is a lifecycle removal of time-bound tariff announcement language, not a signal that tariff risk has disappeared.

Apple removed a standalone risk factor titled "The Company expects its quarterly net sales and results of operations to fluctuate" that described seasonal holiday demand patterns, product introduction impacts, and unexpected quarterly developments. The current filing retains gross margin volatility discussion in a separate risk factor but drops the quarterly fluctuation framing and seasonal holiday demand language. This is a lifecycle removal of standard quarterly-variability boilerplate that does not signal a change in Apple's actual seasonal revenue patterns.

Apple removed a risk factor addressing varied stakeholder expectations on social/ESG issues, environmental goals, and the risk of failing to meet stated values or initiatives. This is a lifecycle removal of ESG-commitment language that was likely added in response to heightened ESG disclosure expectations in prior periods. The removal does not indicate Apple has abandoned environmental or social initiatives, but rather that the company is no longer framing stakeholder expectation misalignment as a standalone material risk in the 10-Q risk factors section.