Apple reports strong profits, weak iPhone sales, and faces challenges in China.
Apple recently released its latest earnings report, revealing a combination of positive and negative outcomes. While the tech giant exceeded Wall Street’s expectations in terms of overall earnings, it fell short of its projected iPhone sales figures. This failure to meet iPhone sales forecasts is particularly worrying for Apple, given that the device contributes to almost half of its revenue. Sales in China also took a hit, dropping by 11.1% in the quarter, although Apple remains hopeful about future prospects.
In terms of financial figures, Apple saw a 4% increase in total revenue for its first fiscal quarter, reaching $124.3 billion, slightly above the projected $124.12 billion. However, iPhone revenue came in at $69.14 billion, missing expectations of $71.03 billion, marking Apple’s most significant iPhone revenue miss in two years.
The breakdown of Apple’s performance in comparison to LSEG consensus estimates is as follows: Earnings per share stood at $2.40 (versus an estimate of $2.35), while revenue hit $124.3 billion (compared to an estimated $124.12 billion). iPhone revenue was $69.14 billion, falling short of the expected $71.03 billion, while Mac revenue reached $8.99 billion (surpassing the estimated $7.96 billion). There was also positive performance in iPad revenue, reaching $8.09 billion (exceeding the estimated $7.32 billion), other products revenue at $11.75 billion (versus an estimated $12.01 billion), and services revenue at $26.34 billion (higher than the estimated $26.09 billion). Apple reported a net income of $36.33 billion, up by 7.1% compared to the previous year.
Despite the iPhone sales disappointment, there were also areas of success within Apple’s report. Mac and iPad sales surpassed expectations, with Mac revenue growing by 15% to $8.99 billion and iPad revenue increasing by 15% to $8.09 billion. Apple attributed this achievement to the launch of new products, including updated iMac, Mac Mini, and MacBook Pro models in October, along with a new iPad Mini. CEO Tim Cook emphasized the positive response to Apple’s latest Mac lineup as a significant growth driver, marking the most substantial rise in Mac sales since late 2022.
However, Apple faced challenges with its iPhone sales, experiencing the most significant revenue decline since fiscal Q1 2023 due to production issues disrupting iPhone 14 supply. Even with the launch of the iPhone 16 and the introduction of the Apple Intelligence AI suite, iPhone sales failed to meet expectations. Notably, weak performance in China was a key factor in the decline, with sales in the region, including mainland China, Hong Kong, and Taiwan, dropping by 11.1% to $18.51 billion—a steep decrease following last year’s 12.9% drop.
Tim Cook identified three primary reasons for the decline in China sales. Firstly, a shift in channel inventory accounted for half of the reduction. Secondly, the unavailability of Apple Intelligence in China limited the demand for new iPhones. Lastly, a recent national subsidy by China could potentially aid future sales. Cook highlighted that demand for iPhones was stronger in markets where Apple Intelligence was accessible, indicating that expanding AI-powered features to China and other regions could boost future sales.
On a brighter note, Apple’s Services division, which includes subscriptions, warranties, and licensing, showed positive growth with revenue increasing by 14% to $26.34 billion, surpassing expectations. The company now boasts over one billion paid subscriptions, encompassing services such as Apple TV+, iCloud, and third-party app subscriptions. Apple foresees “low double-digit” growth in Services for the March quarter, solidifying its position as a key driver of profitability.
Following the earnings report, Apple’s stock surged by 3% in extended trading as the company forecasted revenue growth for the March quarter. Apple anticipates an overall growth rate in the “low to mid-single digits,” with Services expected to grow by low double digits. Apple did caution that a strong U.S. dollar could potentially impact sales by 2.5%, but adjusting for currency fluctuations would yield a growth rate similar to December’s 6% increase.
Looking ahead, Apple continues to navigate changing market dynamics. With Mac and iPad sales rebounding, Services experiencing rapid growth, and plans for expanding Apple Intelligence, the company aims to sustain its momentum through future innovations. The pivotal question remains: Can Apple reignite iPhone demand, especially in China? With strategies to expand Apple Intelligence and introduce new products, the upcoming quarters will be critical in determining Apple’s strategic direction.