Apple Returns To Revenue Growth, But Still Faces Challenges In China
AInvestFriday, Feb 2, 2024 5:36 am ET
3min read
AAPL --

Apple released its first quarter report ending December 30th after the market closed yesterday.

Despite losing the title of world's most valuable company due to analyst downgrades and concerning iPhone demand, this 3C giant has returned to a revenue growth trajectory and set another record high for earnings.

However, with dropping sales in the Greater China market and bland guidance for next quarter, investor doubts are escalating and causing the stock to fall more than 3% after hours.

In fact, excluding the after-hours drop, Apple has already fallen nearly 3% this year, with a market value of just over $2.8 trillion. By comparison, AI-focused Microsoft continues to retain a $3 trillion valuation.

Specifically, Apple collected quarterly net sales of $119.6 billion, up 2% year over year. This suggests the company returned to growth after four consecutive quarters of y/y decline and beat the market expectation of $118 billion.

Its net income was $34 billion, up 13% year on year, and converts an EPS of $2.18, exceeding an expected $2.1, setting a new high.

The Overall gross margin was 45.88%, up nearly 3 percentage points over year. This was driven by the proportion of iPhone high-end models shipped, cost optimization, and service revenue growth, highlighting its strong bargaining power

CEO Tim Cook said: Today Apple is reporting revenue growth for the December quarter fueled by iPhone sales and an all-time revenue record in Services. We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.

As customers begin to experience the incredible Apple Vision Pro tomorrow, we are as committed as ever to the pursuit of groundbreaking innovation — in line with our values and on behalf of our customers, Cook continued.

However, such momentum may be hard to sustain. CFO Luca Maestri predicts that Apple's overall revenue and iPhone revenue for the current quarter will be flat year over year, implying that the return to growth may be a temporary phenomenon. We are confident in our future, and continue to make significant investments across our business to support our long-term growth plans, he stated.

Looking at the products, the iPhone, which accounts for half of revenue, generated $69.7 billion in sales last quarter, up 6% year on year, the strongest growth in hardware. This is driven by the growth in demand for electronic products during the consumer season in Europe and America, and the full-scale effort after the release of the iPhone 15 series.

In other hardware, Mac revenue was $7.78 billion, up 0.6% year on year; iPad revenue was $7.02 billion, down 25% year on year, affected by Apple not releasing a new iPad in the past year. Meanwhile, the company generated $11.95 billion in revenue from wearable devices, home products, and accessories, down 11% year on year, partially due to a temporary ban on sales of the Apple Watch Series 2 and Ultra 2 in the US due to a patent dispute.

Service revenue hit a record high of $23.1 billion, up 11% year on year, but slightly below expectations. Cook attributed the growth in services to an increase in advertising, cloud services, payments, and products within the company's App Store. He stated that Apple now has over 1 billion paid subscriptions, including apps subscribed to through the App Store.

Divided by region, America, as Apple's largest revenue contributor, continues to hold its own, contributing $50.4 billion for the quarter, up 2% year on year; Europe contributed revenue of $30.4 billion for the quarter, up 10% year on year; However, the Greater China region saw its revenue further slowdown, reaching $20.8 billion, a sharp decrease of 13% year on year, its worst December quarter performance since early 2020.

CFO Luca Maestri also expressed dissatisfaction with the company's performance in the Greater China region, but as the world's most competitive smartphone market, expectations remain high, and he believes Apple will still see significant opportunities in China.

Additionally, the Apple MR headset Vision Pro is also about to be launched. As initial capacity is limited and the early stage is loss-making due to production ramp-up, the overall impact on Apple is expected to be small.

Meanwhile, Apple is accelerating the development of software to match hardware, with more than 600 apps and games specifically designed for Vision Pro set to launch on February 2nd.

On the other hand, although Apple seldom discloses its progress in AI, the company is actually accelerating its layout in this field. Cook stated during the earnings call that Apple will announce new AI features this year.

Notably, Apple insider Mark Gurman previously revealed that internally, Apple sees iOS 18 as its most important update ever, with an announcement of related generative AI technology expected at this year's WWDC in June.


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