Apple earnings: record revenue, strong holiday outlook and services shine

iPhone 17 drives growth but faces supply strains

The new iPhone 17 line-up was the main driver of growth. iPhone sales rose 6% to USD 49 billion, slightly below expectations due to supply bottlenecks in some models. The combination of higher price points on the Pro and Pro Max models and strong initial demand boosted revenue, even as unit volumes stayed relatively stable.

Apple’s Chief Financial Officer, Kevan Parekh, said the company expects total revenue to grow 10–12% year on year in the December quarter, with double-digit iPhone growth. That is well above market expectations of 6%. The refreshed design, improved battery life and upgraded camera systems appear to have reignited the upgrade cycle after years of modest refreshes.

Apple’s momentum suggests a broad upgrade wave could extend well into 2026. The iPhone remains the backbone of Apple’s business, accounting for roughly half of total revenue, and the early signs for the iPhone 17 cycle point to sustained demand.

Services hit all-time high and strengthen Apple’s model

Apple’s services division has become the company’s most powerful profit engine. Services revenue rose 15% to USD 28.8 billion, setting an all-time high and pushing full-year services revenue above USD 100 billion for the first time.

The business includes the App Store, iCloud, Apple Music, Apple TV+, Apple Pay, and payments from Google to remain the default search provider in Safari. Those Google payments alone account for roughly one-fifth of Apple’s operating profit, underlining both their importance and the potential regulatory sensitivity around them. The rest stems from subscriptions and app-store fees, giving the company both stability and pricing leverage.

The steady expansion of Apple’s installed base of active devices has turned services into a structural growth driver. Every new iPhone, iPad or Mac sold increases the company’s recurring revenue stream and deepens customer loyalty. The growing subscription footprint gives Apple visibility into future earnings and reduces reliance on one-off product cycles.

Regional divergence: strength in Europe, softness in China

The geographical picture was mixed. Europe delivered strong performance, with sales up 15% year on year to USD 28.7 billion, supported by strong iPhone and Mac demand. The Americas rose 6% to USD 44.2 billion, while Japan and the rest of Asia-Pacific posted double-digit growth.

China was the weak spot, with revenue down 4% to USD 14.5 billion. Competition from local brands and lingering trade friction weighed on results. Apple absorbed about USD 1.1 billion in tariff costs last quarter and expects a further USD 1.4 billion hit in the December period, though easing trade tensions could provide some relief. The continued relocation of assembly to India is helping diversify its supply chain and reduce geopolitical risk.

Margins, cash and shareholder returns

Apple’s gross margin of 47.2% beat expectations, supported by a higher services mix and strong cost discipline. Operating income reached USD 32.4 billion, equivalent to a margin above 31%.

The company guided for margins of 47–48% through year-end despite tariff costs and an 11% rise in operating expenses tied to R&D and AI investment, demonstrating pricing power and operational efficiency.

Apple continues to return substantial cash to shareholders, repurchasing around USD 20 billion in shares during the quarter and maintaining a dividend of USD 0.26 per share payable on 13 November. The balance sheet remains robust, with nearly USD 36 billion in cash and equivalents.

Outlook: optimism with caveats

Apple offered an upbeat outlook for the December quarter, forecasting revenue growth of 10–12% and double-digit iPhone sales. That guidance signals confidence in consumer demand despite economic uncertainty.

Unlike its megacap peers, Apple is taking a measured approach to AI. While Microsoft, Google and Meta are investing tens of billions in data centres, Apple spent around USD 12.7 billion in capital expenditure last year, up 35% but still modest by comparison. The company is building its own Private Cloud Compute infrastructure and running AI features through its chips rather than relying heavily on external GPUs. This “quiet AI” strategy plays to Apple’s strengths in privacy, integration and efficiency, but it also means its AI progress is less visible than that of its rivals.

Regulatory scrutiny remains another risk. Apple’s tight control over its ecosystem and its lucrative deal with Google face constant legal and political attention. Any forced changes could pressure services margins, though recent rulings have so far favoured Apple.

What investors should monitor

In the coming quarters, three indicators will be crucial:

1. iPhone 17 sell-through: Whether the early upgrade enthusiasm can sustain beyond the holiday season.
2. Services momentum: Continued double-digit growth despite regulatory challenges.
3. China trajectory: Signs of stabilisation or further decline.

Apple’s ability to balance these dynamics will determine whether it can extend its record run. The company’s transformation from a hardware vendor to a platform ecosystem gives it more stability than in past cycles, but expectations are high and execution must remain flawless.

A solid foundation heading into 2026

This quarter underlined Apple’s evolution. Slower iPhone unit growth was more than offset by rising margins, growing services, and record cash generation. The business is now driven as much by recurring income as by product launches.

For investors, the story remains one of consistency and resilience. Few companies combine Apple’s scale, loyalty, and profitability. For now, investors seem willing to give Apple the benefit of the doubt, valuing its discipline and ecosystem strength over flashy AI spending. But that patience could wear thin if its AI story fails to become more visible in 2026. The devices may change each year, but the formula endures: sell the hardware once, and the ecosystem for life.

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