Apple announced record quarterly sales on Thursday and provided earnings guidance that surpassed Wall Street's expectations. However, a warning about rising memory costs sparked investor concerns over margin pressure, ultimately limiting the stock's gains. The company projected second-quarter revenue growth of 13% to 16%, exceeding the 10% increase anticipated by analysts. This indicates the company's ability to sustain its growth momentum following a surge in holiday season sales. Nevertheless, CEO Tim Cook cautioned during Thursday's analyst call that rising memory prices would have a "greater impact" on the current quarter's gross margin. Cook stated, "We do continue to see significant market price increases on memory." Beyond memory costs, Apple also faces supply constraints for the 3nm processors used in iPhones and for the AirPods Pro 3. This statement unsettled investors. Following the earnings release, Apple's stock was volatile in after-hours trading and has so far risen less than 1%. Year-to-date, the stock is down 5%, contrasting with the S&P 500 index's 1.8% gain over the same period.
Record iPhone Performance Drives Revenue Beat For the holiday quarter ending December 27, Apple reported revenue of $143.8 billion, a 16% year-over-year increase that significantly exceeded the average analyst estimate of $138.4 billion. The company's own previous forecast had been for growth between 10% and 12%. In the earnings statement, Cook said, "iPhone delivered an all-time quarterly record, with unprecedented demand and all-time records in every geographic segment." iPhone revenue reached $85.3 billion, surpassing expectations of $78.3 billion and marking a 23% increase from the previous year. This product line accounts for roughly half of Apple's total revenue, with high-end models proving particularly popular, further driving sales and profit growth. Earnings per share came in at $2.84, beating the average forecast of $2.68. Performance in China was especially notable, with revenue soaring to $25.5 billion, a 38% year-over-year jump that far outpaced Wall Street's expectation of $21.8 billion. This marks a robust rebound for Apple in this critical market. The company recently reclaimed the top spot in global smartphone sales, surpassing Samsung Electronics.
Services Show Steady Growth, Other Product Lines Mixed The Services business emerged as another growth engine, with quarterly revenue hitting $30 billion, a 14% increase that met market expectations. This segment continues to provide Apple with a stable, high-margin revenue stream. iPad sales reached $8.6 billion, up 6.3% and exceeding the $8.18 billion analysts had predicted. However, Mac performance was weak, with revenue declining 6.7% to $8.39 billion, falling short of the expected $9.13 billion. The Wearables, Home, and Accessories segment continued its slump, with sales dropping 2.2% to $11.5 billion, missing the analyst consensus of $12.1 billion. The ongoing weakness in this business highlights the challenge Apple faces in finding new growth drivers beyond the iPhone.
Cost Pressures and Supply Chain Challenges Persist Although the impact of memory costs was limited in the previous quarter, Cook made it clear that greater pressure is expected in the current quarter. The significant rise in memory market prices is threatening the company's profit margins. On the supply chain front, Apple also contends with supply constraints for the 3nm processors used in iPhones and for the AirPods Pro 3. Additionally, tariff issues created a $1.4 billion headwind for the company during the holiday quarter. Emarketer analyst Jacob Bourne noted in a research report: Uncertainty around maintaining market dominance may be greater than ever, depending on pricing strategies and making the right decisions for the development of next-generation devices, particularly wearables and the anticipated foldable iPhone. Apple also faces concerns regarding its artificial intelligence strategy, with the company making adjustments to related operations this year.
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