Apple's third-quarter earnings exceeded expectations, with total revenue reaching $109.4 billion, driven by a surge in iPhone sales that beat analyst estimates for both revenue and net profit. However, the company's services segment and Greater China revenue underperformed forecasts, leading to a decline in the stock price after the earnings report. In pre-market trading on Friday, Apple shares dropped over 7.6% as investors reassessed the results.
For the quarter, Apple reported earnings per share of $2.02 and total revenue of $109.4 billion, surpassing the market consensus of $1.89 EPS and $108.8 billion in revenue. In the third quarter of fiscal 2025, Apple posted EPS of $1.57 on revenue of $94 billion. Pre-market trading (as of 9:22:39 AM ET) saw shares at $306.86, down $26.57, or 7.97%.
Where to start
Revenue from the iPhone segment reached $54.2 billion, exceeding the market expectation of $53.5 billion, compared to $44.5 billion in the same period last year. Services, Apple's second-largest revenue driver, generated $30.7 billion this quarter, falling short of the anticipated $31.3 billion. Greater China revenue came in at $18.8 billion, missing the analyst forecast of $19.5 billion.
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Apple's stock has outperformed many large-cap tech peers this year, but the Cupertino, California-based company continues to face operational challenges from the artificial intelligence boom. The global expansion of the AI industry has driven up costs for memory and flash storage. To offset these rising expenses, Apple has increased prices for the Mac and iPad, though the iPhone has remained at its current price point for now. Market expectations are that Apple will introduce a new iPhone lineup at its September fall product launch and simultaneously raise prices.
Jefferies analyst Edison Lee noted that higher memory costs will continue to pressure iPhone profit margins. In a research note to investors, he stated, "We expect memory costs to keep rising in the second half of 2026. Based on the logic of iPad price adjustments—where the standard iPad saw a $200 increase and the 512GB version added $300—the incremental margin on new products is only 21%. This could compress the overall iPhone gross margin from 38% to 34.5%."
Meanwhile, KeyBanc Capital Markets analyst Brandon Nispel argued that the impact of iPhone price hikes extends beyond margin pressure. In his note, he said, "When the semiconductor sector is broadly declining, Apple is seen as a safe haven, but the market has overlooked a core logic, consistent with our prior view: iPhone price increases will slow shipment growth; stagnant shipments will hamper user base expansion, ultimately dragging down services revenue growth."
On Tuesday, Apple launched a new device rental service, allowing users to lease iPhones, Macs, and other hardware across its lineup. This new initiative may help mitigate some of the above risks. All of these operational challenges will be handed over to incoming CEO John Ternus, who will officially succeed Tim Cook on September 1. The earnings report released on Thursday marks the final financial statement under Cook's tenure.
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