Apple’s Earnings: Strong Profits, Weak iPhone Sales, and a China Challenge

Apple’s Earnings: Strong Profits, Weak iPhone Sales, and a China Challenge

Information for this article was provided byBy Market Briefs

Apple’s latest earnings report offered a mix of highs and lows. While the company outperformed Wall Street’s overall earnings expectations, it missed iPhone sales forecasts—a concerning sign for a company that relies on the device for nearly half its revenue. China sales were particularly weak, falling 11.1% during the quarter, but Apple remains optimistic about future growth.

The Numbers: Apple’s Quarter at a Glance

Apple reported a 4% rise in total revenue for its first fiscal quarter, reaching $124.3 billion, slightly above Wall Street’s estimate of $124.12 billion. However, iPhone revenue came in at $69.14 billion, missing the expected $71.03 billion—Apple’s biggest iPhone revenue miss in two years.

Here’s how Apple performed versus LSEG consensus estimates:

• Earnings per share: $2.40 (vs. $2.35 estimated)

• Revenue: $124.30 billion (vs. $124.12 billion estimated)

• iPhone revenue: $69.14 billion (vs. $71.03 billion estimated)

• Mac revenue: $8.99 billion (vs. $7.96 billion estimated)

• iPad revenue: $8.09 billion (vs. $7.32 billion estimated)

• Other products revenue: $11.75 billion (vs. $12.01 billion estimated)

• Services revenue: $26.34 billion (vs. $26.09 billion estimated)

• Gross margin: 46.9% (vs. 46.5% estimated)

Apple reported a net income of $36.33 billion, up 7.1% from the same period last year. The company also posted a record-high gross margin of 46.9%.

The Good News: Strong Mac and iPad Sales

Mac and iPad sales outperformed expectations, with Mac revenue up 15% to $8.99 billion and iPad revenue rising 15% to $8.09 billion. Apple credited this surge to new product launches, including updated iMac, Mac Mini, and MacBook Pro models in October, as well as a new iPad Mini.

CEO Tim Cook highlighted the excitement around Apple’s latest Mac lineup as a key driver of growth, marking the best Mac sales increase since late 2022.

The Bad News: iPhone Sales Disappoint

Apple’s iPhone revenue decline was the biggest miss since fiscal Q1 2023, when production issues disrupted iPhone 14 supply. While Apple launched the iPhone 16 and introduced its Apple Intelligence AI suite, iPhone sales failed to meet expectations.

One key factor: weakness in China. Apple’s sales in the region—including mainland China, Hong Kong, and Taiwan—dropped 11.1% to $18.51 billion, marking the steepest decline since last year’s 12.9% drop.

Tim Cook pointed to three reasons for the China sales slump:

1. A shift in channel inventory accounted for half the decline.

2. Apple Intelligence isn’t available in China yet, limiting demand for new iPhones.

3. China recently issued a national subsidy, which could help future sales.

Cook noted that iPhone demand was stronger in markets where Apple Intelligence was available, suggesting that expanding AI-powered features to China and other regions could drive future sales. Apple plans to roll out a simplified Chinese version of Apple Intelligence in April.

The Services Boom: Apple’s Profit Engine

Apple’s Services division—which includes subscriptions, warranties, and licensing—was a bright spot. Revenue jumped 14% to $26.34 billion, surpassing expectations. The company now has over one billion paid subscriptions, covering services like Apple TV+, iCloud, and third-party app subscriptions.

Apple expects “low double-digit” growth in Services for the March quarter, reinforcing its status as a key driver of profitability.

Wall Street’s Reaction & Future Outlook

Despite missing iPhone sales expectations, Apple’s stock rose 3% in extended trading after the company forecasted revenue growth for the March quarter. Apple expects overall growth of “low to mid-single digits”, with Services growing in the low double digits.

Apple warned that a strong U.S. dollar could drag sales by 2.5%, but after adjusting for currency, its growth rate would be similar to December’s 6% increase.

Looking Ahead

Apple remains a financial powerhouse, but its earnings report highlights shifting market dynamics. With Mac and iPad sales rebounding, Services growing rapidly, and Apple Intelligence expanding, the company is banking on future innovations to sustain momentum.

The big question: Can Apple reignite iPhone demand, especially in China? With the company preparing to expand Apple Intelligence and launch new products, the next few quarters will be critical in determining its path forward.