Apple’s Q1 FY 2025 Earnings Release: Strong Services Growth Amid iPhone Sales Pressure

At 5:00 PM ET on January 30, $AAPL released its financial results for the first quarter of fiscal year 2025 (October–December 2024). While iPhone sales did not drive growth as expected and the Greater China market underperformed relative to market expectations, strong growth in the services segment led the company to achieve record highs in quarterly revenue, profit, and gross margin.

Key Highlights

Revenue: $124.3 billion, up 4% year-over-year, slightly exceeding the market estimate of $124.2 billion.
Net Income: $36.33 billion, with earnings per share (EPS) of $2.40, surpassing the market expectation of $2.35.
Gross Margin: A record 46.9%, with the company projecting a margin of 46.5%–47.5% for the next quarter.
Greater China Net Sales: $18.51 billion, below the market expectation of $21.33 billion, representing an 11.1% year-over-year decline.

Product Line Performance

iPhone: Sales revenue reached $69.14 billion, falling short of the market estimate of $71.13 billion and slightly declining year-over-year (compared to $69.7 billion in the same period last year).
iPad: Sales revenue was $8.09 billion, exceeding the market forecast of $7.35 billion (+15.2%).
Mac: Sales revenue reached $8.99 billion, significantly surpassing the market expectation of $7.96 billion (+15.5%).
Wearables, Home, and Accessories: Sales revenue was $11.75 billion, slightly below the market forecast of $11.94 billion (-2%).
Services (including the App Store, Apple Music, etc.): Revenue reached a record high of $26.34 billion, surpassing the market expectation of $26.10 billion (+14%).

Challenges in the Rollout of Apple Intelligence

Despite achieving its best-ever financial performance in Q1 FY 2025, iPhone 16 series sales fell short of market expectations. CEO Tim Cook stated that the limited rollout of Apple Intelligence has affected demand in certain markets. Currently, the feature is available only in select English-speaking regions, with plans to introduce additional language versions, including Simplified Chinese, in April. However, Cook did not specify a timeline for the feature’s launch in China.

Regarding the decline in Greater China revenue, Cook attributed approximately half of the drop to "channel inventory adjustments," suggesting that actual sales performance was better than reported figures. He highlighted that in markets where Apple Intelligence has been introduced, including the U.S., the U.K., Canada, and Australia, demand for the iPhone 16 series has been strong. Additionally, recent government policies providing subsidies for consumer electronics could contribute to a rebound in demand over the coming quarters.

Other Business Highlights and Capital Returns

Strong Mac and iPad Performance: Mac sales posted their highest growth rate in nearly two years, driven by strong demand for the new iMac, Mac Mini, MacBook Pro, and iPad Mini.
Weak Wearables Segment: Sales of Apple Watch, AirPods, Beats, and Vision Pro declined by 2% year-over-year, reflecting softer market demand.
Active Device Growth: The number of active Apple devices worldwide reached 2.35 billion, up approximately 7% from the previous year.
Shareholder Returns: Newly appointed CFO Kevan Parekh announced that Apple will continue its $0.25 per share dividend payment and repurchased over $30 billion in stock during the last quarter.

Outlook

Apple expects Q2 FY 2025 revenue growth to remain in the low-to-mid single digits, with services revenue projected to grow in the low double digits. Adjusted for currency fluctuations, overall growth trends are expected to be similar to this quarter.

Market analysts previously projected Q2 revenue of $95.46 billion and EPS of $1.66, compared to $90.75 billion in revenue and $1.53 EPS in the same period last year. Despite concerns over iPhone sales, Apple’s continued strength in services, along with solid Mac and iPad performance, continues to support its profitability. After an initial dip, Apple shares rebounded in after-hours trading, rising approximately 3%, signaling investor confidence in the company’s long-term value.

The rollout of Apple Intelligence has already had a positive impact on iPhone upgrade cycles in select markets and is expected to expand further in the coming months. Meanwhile, the services segment remains a key growth driver, reinforcing Apple’s ecosystem monetization. Its ability to sustain double-digit growth will play a crucial role in shaping long-term profitability.