Apple Q3 Earnings Reveal: iPad and Services Soar, While iPhone Revenue Unexpectedly Drops

Apple Inc.$AAPL(AAPL) recently released its financial results for the third quarter of fiscal year 2024, once again stunning Wall Street with impressive numbers. The company achieved revenue of $85.78 billion, up 5% year-over-year, surpassing the market expectation of $84.55 billion. Earnings per share (EPS) came in at $1.40, also exceeding the forecast of $1.35 $AAPL(AAPL).

Key Financial Metrics at a Glance

• Revenue: $85.78 billion, up 5% year-over-year

• Earnings per Share: $1.40, higher than the expected $1.35

• Net Profit: $21.448 billion, up 7.87% year-over-year

• Gross Margin: 46.3%, higher than the expected 46.1%

  
  

Performance by Business Segment

• iPhone: Despite iPhone remaining Apple's most critical business, accounting for 46% of total sales, its revenue dropped 1% year-over-year to $39.3 billion. However, this figure still exceeded analysts' expectations of $38.81 billion.

• Mac: Mac revenue stood at $7.01 billion, essentially meeting market expectations of $7.02 billion, up 2.5% year-over-year.

• iPad: The iPad performed exceptionally well, with revenue reaching $7.16 billion, a substantial 24% increase year-over-year, far surpassing the expected $6.61 billion.

• Services: The services segment continued its robust growth, generating $24.21 billion in revenue, up 14% year-over-year and exceeding the forecast of $24.01 billion.

• Wearables, Home, and Accessories: Revenue for this segment was $8.10 billion, higher than the expected $7.79 billion.

Regional Revenue Performance

Regionally, Apple's revenue in its largest market, North America, grew by 6.5%, while the European market saw an 8.3% increase. However, revenue in Greater China fell by 6.5% year-over-year, the only region to experience a decline. Despite this, the number of iPhone users in mainland China hit a new high, and iPhone sales ranked among the top three in Chinese cities.

Cook's Market Confidence and Future Outlook

Apple CEO Tim Cook expressed strong confidence in the long-term performance of the Chinese market during the earnings call. Even though Greater China revenue declined, the drop was only 3% when excluding currency effects. Cook highlighted that the number of iPhone users and the upgrade rate in China both reached new highs, with the iPhone 15 outperforming its predecessor.

Artificial Intelligence and Future Expectations

Analysts showed keen interest in Apple's AI strategy during the earnings call. Cook stated that AI is a significant reason for customers to purchase new iPhones, but it's still too early to make definitive judgments about future demand. Company executives revealed that service revenue is expected to maintain double-digit growth in the fourth quarter, with gross margins projected to be between 45.5% and 46.5%, aligning with expectations.

Investor Concerns and Market Reaction

Despite the overall positive earnings report, investors remain focused on two key issues: whether Apple's AI initiatives will trigger a wave of device upgrades and the recovery of the Chinese market. These questions have yet to be definitively answered, resulting in little change in Apple's stock price during after-hours trading.

In summary, Apple's Q3 earnings report was a mixed bag. While the iPad and services segments showed strong growth, the decline in iPhone revenue and Greater China sales warrants attention. Moving forward, Apple's AI initiatives and the performance in the Chinese market will be crucial focal points for investors.

Opportunities and Risks

• Opportunities:

• Sustained Growth in Services: The growth in service revenue indicates that Apple's expansion into software, subscription services, and other value-added services has a promising outlook. This high-margin business will also help improve the company's overall profitability.

• New Products and Technological Innovation: Apple's ongoing investment in AI, augmented reality (AR), and other cutting-edge technologies could bring new growth opportunities and market potential.

• Risks:

• Intensifying Market Competition: The competitive landscape for smartphones and other electronic products is fierce, potentially impacting Apple's market share and profit margins.

• Return on R&D Investment: Despite significant investments in technological innovation, the market acceptance and profitability of new technologies and products remain uncertain.