Apple reported a mixed financial performance for its fiscal fourth quarter, with revenue surpassing expectations but iPad sales falling short. The company's stock declined in after-hours trading following a disappointing gross margin forecast. This marks the first earnings report under new CEO John Ternus, who took over from Tim Cook on September 1.
Apple announced a 12% increase in quarterly revenue, reaching $102.5 billion compared to the previous year. However, the company's gross margin forecast for the current quarter, set between 45% and 46%, fell below the 46.3% anticipated by analysts. Despite these challenges, Ternus expressed optimism about Apple's future, citing a strong fiscal year and overcoming supply constraints and foreign exchange issues.
During the earnings call, Ternus highlighted Apple's recent product launches, including new iPhones and touch screen laptops. He noted that the company's iPhone revenue only included eight days of sales from the new iPhone 18 Pro, with the iPhone Duo yet to hit the market. Apple had raised prices across its product lines in June, including a $100 increase for iPhones, to counteract rising memory and component costs.
Apple's services division, which encompasses a range of offerings such as iCloud storage and App Store fees, saw growth of less than 10%, marking its slowest expansion since 2022. Despite this, Ternus reported record performances in video, cloud services, and music.
Product Line Performance
The iPhone remains Apple's flagship product, contributing to over half of the company's sales. Meanwhile, Apple's Mac division experienced significant growth, with revenue surging to $10.79 billion, exceeding analyst expectations. This growth was attributed to strong sales of the MacBook Neo and MacBook Pro.
In contrast, the iPad division saw a decline in sales, making it the worst-performing product category. Ternus attributed this to supply constraints and challenging year-over-year comparisons. The company had released a new iPad Mini and updated the iPad Air earlier in the year, but these updates did not significantly boost sales.
Apple's Greater China business reported an increase in sales, totaling $17.53 billion, driven by iPhone and Mac sales. The region includes mainland China, Taiwan, and Hong Kong.
In terms of capital expenditures, Apple reported $2.24 billion for the quarter, falling short of the $3.33 billion estimated by analysts. This spending level is notably lower than that of its megacap peers, who are heavily investing in AI technologies.
Apple's updated Siri AI, a free upgrade for compatible iPhones, was released during the quarter. Ternus mentioned potential monetization opportunities through hardware upgrades, suggesting future AI features could be offered
Looking ahead, Apple CFO Kevan Parekh provided guidance for the December quarter, projecting revenue growth between 7% and 10%, surpassing the 6.1% expected by analysts. However, he noted that gross margins would remain between 45% and 46%, continuing to face pressure from high component prices.
Analyst Laura Martin from Needham expressed concerns about Apple's reliance on the smartphone market amid increasing competition from AI companies. She recommended holding the stock, noting that competitors like Meta and Google are exploring new hardware form factors.
Apple's decision to report earnings on a Monday was unusual, as the company typically opts for Thursdays. The last Monday earnings report was over a decade ago, on April 27, 2015.
