Third-quarter revenue rose 16% to $109.4bn ($108.7bn expected). Growth was led by iPhone sales, which rose 22% to $54.3bn, helped by strength in Greater China, where total revenue also rose 22%. Services revenue increased 12% to $30.7bn.
Operating profit rose 27% to $35.7bn ($33.3bn expected), supported by strong revenue growth and a higher overall gross margin.
Free cash flow rose to $110.2bn over the first nine months, up from $72.3bn last year, supporting $62.1bn of share buybacks. Net cash, including longer-term securities, stood at $64.2bn.
For the coming quarter, Apple expects revenue growth of 9-11%, and gross margin between 47-48%.
The shares fell 6.9% in early trading.
Our view
Apple delivered a strong update, but the outlook was less convincing. iPhone demand remains healthy, including in China, and operating profit rose sharply. However, supply constraints are limiting near-term growth, while higher memory costs and slower Services growth put pressure on two important parts of the investment case. The results don’t suggest demand has fallen away, but they make the next few quarters more dependent on Apple improving supply and delivering on its AI plans.
The iPhone cycle remains the key story, and it still has little to do with AI for now. The last major upgrade cycle was in 2021, so this current sales pop was certainly overdue. The latest phones are not game changers, but Apple’s brand is sticky enough and its ecosystem strong enough that loyal customers appear willing to upgrade. Supply shortages mean Apple cannot fully meet that demand today, but this could leave sales to be captured later rather than lost altogether.
Margins have been another bright spot, though memory prices are now a more meaningful headwind. Apple has traditionally used its scale and supplier relationships to protect profitability, but some pressure will be unavoidable. Expected price rises could offer relief, although customers’ willingness to absorb higher prices will be important to watch. US-China tensions also remain a risk, making the gradual shift towards India, Vietnam and the US important.
Apple Intelligence has still not delivered the “wow” moment investors were hoping for. The planned Siri upgrade is therefore an important test. Apple is taking a different route from peers, leaning more heavily on partners rather than spending vast sums to build its own leading model. That limits the strain on cash flow, but Apple still needs to prove that a partnership-led approach can create useful products that strengthen its ecosystem.
Services remain a key profit driver. Growth is still healthy, and this business carries much higher margins than selling devices. But the latest quarter showed slight signs of softness, and there is a chance we see growth slow further in the near term. Longer term, we think this side of the business is set to benefit from an influx of new AI-created apps. Service revenue also depends on the size and strength of Apple’s installed base, so hardware momentum remains important.
All in, strong device demand gives Apple time to improve supply and sharpen its AI offering. The business continues to generate substantial cash, and its installed base remains a major strength. But slower Services growth, cost pressures, and what remains a demanding valuation leave less room for disappointment if the next product and AI launches fail to deliver.
Environmental, social and governance (ESG) risk
The technology industry is low-risk in terms of ESG, though some segments like Electronic Components are more exposed to environmental risks. Business ethics tends to be a material risk within the tech sector with everything from anti-competitive practices to intellectual property rights weighing. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Apple’s management of ESG risk is strong.
Apple is facing legal pressure on multiple fronts, with lawsuits and investigations over antitrust practices tied to the App Store, Apple Pay, and developer restrictions - leading to billions in fines across the EU, UK, and US, while prompting policy changes like lowering fees and allowing third-party app stores in Europe.
Apple key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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