Apple's Q2 Earnings Beat Expectations, Stock Drops 2% on Services Slowdown

Apple Inc. (AAPL.US) reported its fiscal second-quarter earnings for 2025, ending March 31, after the U.S. market closed on Thursday. The company exceeded market expectations for both revenue and net income. However, the growth in its key services business fell slightly short of expectations, causing market concerns and leading to a more than 2% drop in the company's stock price in after-hours trading.

The earnings report showed that Apple's earnings per share for the quarter were $1.65, surpassing the market's expectation of $1.63. Revenue reached $95.4 billion, also exceeding analysts' estimates of $94.66 billion. The iPhone remained the company's most significant revenue source, with quarterly revenue of $46.84 billion, slightly higher than the expected $45.84 billion, and a year-over-year increase of nearly 2%. The Mac and iPad also performed well, with the Mac generating $7.95 billion in revenue, a year-over-year increase of nearly 7%, and the iPad generating $6.4 billion in revenue, a year-over-year increase of 15% due to the launch of the new iPad Air.

The wearable devices and accessories segment, which includes the Apple Watch and AirPods, showed weaker performance, with revenue of $7.52 billion, a year-over-year decrease of 5%. The most concerning aspect for the market was the services business, which generated $26.65 billion in revenue, although this represented an 11.65% year-over-year increase, it was lower than the 14.2% growth rate from the previous year and below the market's expectation of $26.7 billion. This business segment includes iCloud, Apple Music, Apple TV+, warranty services, and licensing revenue from Google's search engine, and it is Apple's highest-margin business. The slowing growth rate has raised investor concerns about the growth ceiling.

Apple CEO Tim Cook mentioned in an interview that the company is actively adjusting its global supply chain to adapt to the changing trade environment. Currently, more than half of the iPhones for the U.S. market are produced in India, while most Mac, iPad, AirPods, and Apple Watch products are manufactured in Vietnam. Cook also noted that the company will purchase $19 billion worth of chips from the U.S. this year, emphasizing that the diversification of iPhone internal components will enhance supply chain resilience.

In terms of regional markets, revenue from the Greater China region was $16 billion, slightly lower than the previous year. Cook pointed out that excluding the impact of exchange rates, the region's revenue remained stable, and sales showed a quarterly accelerating trend. The Americas market performed strongly, with a year-over-year increase of nearly 8%. Despite market concerns that consumers might have pre-ordered due to tariff expectations, Cook stated that there was no clear evidence of such "pre-purchase" behavior.

To boost investor confidence, Apple's board of directors approved a stock buyback plan of up to $100 billion, although this is lower than last year's $110 billion, it still demonstrates the company's confidence in its future cash flow. Additionally, the company increased its quarterly dividend by 4% to $0.26 per share and stated that it will continue to maintain the policy of annual dividend growth.