Apple’s revenue growth hits four-year high as iPhone sales soar – News

Shares of iPhone maker Apple Inc. inched up slightly after-hours on the back of another solid set of financial results, with the company reported earnings and revenue that shot past Wall Street’s estimates.

Apple’s revenue grew by 10%, driven by a 13% increase in iPhone sales, making it the largest quarter for revenue growth since December 2021.

The company reported third-quarter earnings before certain costs such as stock compensation of $1.57 per share, easily beating the Street’s target of $1.43 per share in earnings, while revenue soared to $94.04 billion, crushing the $89.53 billion analyst forecast. Overall, Apple’s net income rose to $23.43 billion, up from $21.49 billion in the same quarter one year ago.

In a call with analysts, Apple Chief Executive Tim Cook (pictured) said the company incurred tariff-related costs of around $800 million in the quarter, rather than pass them on to consumers. That was lower than the $900 million estimate the company provided in May. For the current quarter, Cook said, tariff costs could increase to about $1.1 billion.

Cook made that forecast while providing some color about the company’s expected performance in the current quarter. Apple hasn’t provided official earnings or revenue guidance since before the COVID-19 pandemic, but its executives usually provide a few tidbits during their regular conference calls.

According to Cook, Apple expects to see a mid- to high- single-digit increase in revenue overall, with services growth likely to be similar to the pace shown in the previous three months, around 13%. The CEO added that the company is eying a gross margin of 46% to 47%, taking into account tariff-related costs.

The company admitted that its sales likely received a boost due to some consumers buying products sooner than they would have done otherwise, in order to get ahead of any potential tariffs that may yet come from U.S. President Donald Trump. Cook said he believes about 1% of the company’s revenue growth can be attributed to this activity.

As always, the iPhone remains Apple’s most important product, generating $44.58 billion in sales during the quarter, well ahead of the $40.22 billion expected by Wall Street. Cook told analysts that iPhone sales were stronger than most had forecast because the iPhone 16 model is proving much more popular than the iPhone 15 was at the same time last year. He added that iPhone 16 sales increased in the “strong double digits” compared with its predecessor model, with many existing customers upgrading to the new model.

Constellation Research Inc. analyst Holger Mueller told News that it was normally always holiday seasons or new iPhone models that would indicate a boost in sales, but it seems that anticipation of tariffs can have an effect that’s almost as big.

“This reveals a couple of things, though. For one, it shows that iPhone buyers have become more cost concious,” the analyst intuited. “It also shows that iPhone buyers understand they’re locked-in to Apple’s ecosystem, and it was not just the fact that they were waiting for a better or more innovative model that held them back from buying in the past.”

Interestingly, though, the U.S. tariffs may well have a different impact on iPhone sales in the current quarter, and it may be even more pronounced, Mueller said. “Apple cannot perform last minute shenanigans like chartering planes at the last minute to fly iPhones out of tariff-affected geographies,” he pointed out.

Mac sales impress, but iPads and wearables don’t

The fastest growth of all came in the Mac business, where sales rose 15%, to $8.05 billion, ahead of the $7.26 billion forecast. This growth was driven primarily by sales of Apple’s newest MacBook Air laptops, which went on sale just before the start of the quarter.

Services performed well again, with revenue of $27.42 billion exceeding the $26.80 billion expected. The business generates revenue from Apple’s warranties, content subscriptions, licensing deals with Google and subscriptions to iCloud. The latter was an especially strong performer, Cook said, while App Store revenue rose by “double digits.”

It wasn’t all plain sailing for Apple, though. iPad sales were down 8%, to just $6.58 billion, trailing the $7.24 billion analyst forecast, despite Apple launching a new, lower-cost model in March. As for the company’s “other products,” such as AirPods, Apple Watches and accessories, that unit delivered sales of $7.4 billion, below the $7.82 billion target.

Still, there was encouraging news from China, where sales increased 4% from a year earlier, to $15.37 billion. Apple’s Chinese sales include mainland China, Hong Kong and Taiwan, and it’s one of the most important regions for the company. Yet it had struggled with declining sales there in the previous two quarters from rising competition from Chinese smartphone brands, so investors were likely pleased to see that trend reversing.

AI invites questions

During the quarter, Apple held its annual Worldwide Developers Conference, where it announced major updates to the operating system software that powers its iPhones, Mac computers and other devices. However, some analysts were underwhelmed by Apple’s announcements regarding artificial intelligence, believing that the lack of anything truly original shows that the company is playing second fiddle to many of its rivals in that sector.

But Cook insisted that the company is deadly serious about becoming a major player in AI, saying today that he views it as “one of the most profound technologies of our lifetime.” He added that Apple is significantly growing its investment in AI. “We’re embedding it across our devices, across our platforms and across our company,” he insisted.

A big part of Apple’s AI strategy has involved buying up startups so it can integrate their technologies into its own products and services. According to Cook, the iPhone maker has so far bought “around seven” companies this year, but none of those acquisitions was huge in dollar terms. “We’re open to M&A that accelerates our roadmap,” Cook said in response to a question about whether there are more acquisitions to come. In recent weeks, Apple has been linked with a potential acquisition of the hit AI search startup Perplexity AI Inc., though a simple partnership remains an option, too.

Cook was also asked about the risk of AI devices such as those reportedly being developed by OpenAI potentially impacting sales of the iPhone. In response, he said such devices would more likely complement the company’s flagship device, rather than replace it.

“It’s difficult to see a world where the iPhone is not living in it,” Cook said.

Investors seemed pleased enough with Apple’s results, and its stock initially gained more than 4% in the wake of the report, although it has since been pegged back slightly and is up just over 2% at the time of writing. In the year to date, Apple’s shares are down 17%.

Photo: Mike Deerkoski/Flickr