Apple reported its earnings for the first fiscal quarter of 2024 on Thursday, ending a year-long streak of revenue declines but still facing challenges in China. The tech giant posted $117.2 billion in quarterly revenue, up 0.7% from the year-ago period. Profits also beat expectations at $30.2 billion.
Key Quarterly Metrics Top Estimates But iPhone Sales Dip
The key metrics from Apple’s latest earnings report:
| Metric | Result | Expectation | Change YOY |
|---|---|---|---|
| Revenue | $117.2 billion | $116.6 billion | up 0.7% |
| Earnings Per Share (EPS) | $1.88 | $1.85 | down 3.6% |
| iPhone Revenue | $65.8 billion | $64.1 billion | down 1.7% |
| Services Revenue | $23.1 billion | $22.1 billion | up 6.4% |
While total revenues and profits exceeded analyst forecasts, iPhone sales dipped slightly amid mixed demand trends. Services continued to be a bright spot with growth accelerating to 6.4% from 5.1% last quarter.
Apple did not provide official unit sales for iPhones but estimated a mid-single digit percentage decline. The flagship iPhone 15 led sales during the holiday quarter.
China Sales Plunge as Economy Sags
The major drag on Apple’s results was its Greater China segment encompassing mainland China, Hong Kong and Taiwan. Revenue from Greater China plunged 22% annually to $15.47 billion.
China has faced economic headwinds from its strict zero-COVID policies and a property market downturn. This has dampened consumer spending on big ticket items like smartphones.
Geopolitical tensions around Taiwan and backlash against Western brands have also hurt Apple in China. Competitors like Huawei and Honor have gained share in the premium smartphone market once dominated by Apple.
The sharp decline in China sales could presage more weakness ahead if macroeconomic and political frictions continue to impact technology demand. Apple relies on China for nearly 20% of its total revenue.
Margins Expand on Efficiency Gains
While sales growth was muted, Apple expanded profit margins across all its product categories except iPads. Gross margin hit 43.3%, up from 42.2% last year, aided by supply chain improvements and higher average selling prices.
CEO Tim Cook noted Apple mitigated industry-wide component shortages and manufacturing disruptions better than rivals. The ramp up of iPhone assembly plants in India also helped circumvent China’s COVID disruptions.
Services gross margin jumped to 73.4% as Apple raised prices on subscriptions while tightly controlling content investments. Margin expansion allowed Apple to beat earnings expectations despite the anemic sales growth.
Promising AI Future But Economic Risks Loom
Alongside the earnings news, Apple teased its vision for integrating artificial intelligence deeper into its products. This hints at augmented reality applications in future devices like self-driving cars and smart glasses.
While Apple’s pipeline of new AI products seems robust, the company faces risks from potentially declining consumer technology spending in a weaker macroeconomy. Sales of iPads and Macs have already softened in recent quarters.
If discretionary incomes shrink further, expensive devices like iPhones may also start to falter beyond China’s impacts. But Apple remains a cash flow juggernaut, generating over $34 billion last quarter, which gives it buffers against economic fluctuations.
Outlook Cautious as China and Economy Raise Uncertainty
For the second fiscal quarter, Apple forecast year-over-year revenue growth of around 4-8% to between $120-123 billion vs. expectations of 7% growth. The wider than normal guidance range indicates management sees heightened volatility from China sales and the macroeconomy.
Apple expects negative impacts from foreign exchange rates as the strong dollar pressures overseas earnings. But the launch of the mixed reality Vision Pro headset in March could provide a sales catalyst.
While Apple showed resilience in navigating iPhone supply issues and the China slowdown, ongoing tensions around Taiwan and a potential US recession later this year pose threats. But its brand loyalty and ecosystem stickiness should help Apple weather challenges better than competitors.
This quarter’s modest growth snaps a year-long slump, but the tepid iPhone demand and plunging China sales illustrate Apple has obstacles to overcome. Its towering profits and cash flows provide defenses, but global economic and geopolitical woes could further test Apple in coming quarters.
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