iPhones on display in showroom
iPhone revenue softened from $69.7 billion to $69.1 billion, shy of the $71 billion analysts expected / Image source: Adobe
  • Quarter sets new sales and earnings records
  • iPhone revenues light of estimates
  • Services revenue hits all-time high

California-based colossus Apple (AAPL:NASDAQ) set new records for revenue and earnings in its first quarter to 28 December 2024 and has now beat earnings expectations for eight quarters in a row, positives that propelled the shares up 3.1% to $245 in pre-market trading across the pond.

However, the quarter’s group product revenue gains were predominantly driven by the iPad and Mac rather than the iPhone.

Closely-watched by analysts and investors, the iPhone is supposed to be Apple’s bread and butter but is no longer the big earnings growth driver for the Cupertino-headquartered behemoth.

iPhone sales declined slightly year-on-year and missed Wall Street expectations, while Apple also witnessed an 11.1% decline in sales to $18.5 billion in Greater China, where it faces cut-throat competition.

SERVICES TO THE RESCUE

While Apple’s overall revenue sweetened up 4% to $124.3 billion in the quarter, topping the $124.1 billion Wall Street expected, iPhone revenue softened from $69.7 billion to $69.1 billion.

That was shy of the $71 billion analysts were looking for in the first full quarter featuring iPhone 16 sales.

Thankfully for Apple, this was offset by 14% year-on-year revenue growth in Services, the division that includes subscriptions, warranties and licensing deals, to $26.3 billion.

Interestingly, CEO Tim Cook told CNBC reporter Steve Kovach that iPhone sales were stronger in countries where Apple Intelligence is available.

BAE Systems shares unmoved by in line full year

At present, the software is only available in a sprinkling of English-speaking countries and isn’t accessible in China or in Chinese.

‘Our record revenue and strong operating margins drove EPS (earnings per share) to a new all-time record with double-digit growth and allowed us to return over $30 billion to shareholders,’ enthused Apple’s chief financial officer Kevan Parekh.

‘We are also pleased that our installed base of active devices has reached a new all-time high across all products and geographic segments.’

EXPERT VIEWS

Ben Barringer, technology analyst at Quilter Cheviot, said: ‘Apple’s latest results posted a slight beat, driven primarily by strong performance in its Services, Mac, and iPad segments, rather than iPhone sales, which remained flat. The iPhone’s performance, in particular, was underwhelming, with sales stagnating and a notable decline in China. The uptick in Mac and iPad sales was attributed to new product releases, but this felt more like a short-term boost than a significant structural shift.’

Barringer noted that China remains a challenge for Apple, with a competitive market posing difficulties, while India has been highlighted as an opportunity by the company.

‘Despite the excitement around emerging AI technologies, Apple’s growth remains more expensive than its peers in the “magnificent seven”,’ said Barringer, ‘suggesting that investors may need to recalibrate their expectations.’

Dan Coatsworth, investment analyst at AJ Bell, observed that the fact the iPhone seems to be slipping in importance ‘puts the pressure on the group to come up with something truly new, not simply an upgraded version of existing products. Android phones continue to grow in popularity and are generally cheaper than the iPhone – that’s a big problem for Apple.’

Coatsworth continued: ‘Apple boss Tim Cook said on the conference call that there is “a lot of innovation left on the smartphone”. That suggests Apple still believes the iPhone can be much more useful to people’s lives than it is today, implying it will continue down the path of device upgrades rather than launching something completely different.

‘Apple has forged a reputation for being the master of innovation when it comes to electronic devices. It’s always had challengers nipping at its toes but it has reached the point where Apple now needs to pull a rabbit out of the hat to truly wow the world. Otherwise, it risks getting lost in the crowd.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.

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Issue Date: 31 Jan 2025