Apple delivered a blockbuster first fiscal quarter, with revenue and earnings soaring past Wall Street’s expectations. But investor enthusiasm dimmed after the company warned of margin pressure from surging memory prices.
Revenue came in at $143.8 billion, up 16% year over year, while earnings per share hit $2.84, up 19% from the same quarter last year. Operating cash flow totaled nearly $54 billion, enabling the company to return close to $32 billion to shareholders through buybacks and dividends.
iPhone revenue reached an all-time high of $85.3 billion, driven by exceptional demand for the iPhone 17 lineup. CEO Tim Cook said the demand was “staggering” and highlighted that every geographic region posted record performance. China, which had been a laggard in recent quarters, rebounded sharply. Revenue in Greater China, including Hong Kong and Taiwan, rose 38% year-over-year to $25.5 billion. Cook attributed the rebound to a record number of upgraders and strong traction among Android switchers.
Apple’s installed base has now surpassed 2.5 billion active devices. This milestone further strengthens the company’s services business, which grew 14% year over year to $30 billion. Apple TV’s viewership climbed 36% in December compared to the prior year. Cook called this growth a testament to customer satisfaction with Apple’s ecosystem of products and services.
Despite the record-breaking performance, Apple shares slipped after the earnings call. Cook and CFO Kevan Parekh cautioned investors about the impact of rising memory chip prices. The company expects gross margins in the current quarter to remain flat or slightly lower, between 48 and 49%. That matches Q1’s margin of 48%. Cook acknowledged the challenge, noting that market pricing for memory continues to increase significantly and could put further pressure on margins if the trend continues.
Not all product categories performed equally well. Mac revenue fell 7% year over year, missing analyst expectations. Wearables, Home, and Accessories revenue declined 2%. iPad revenue, on the other hand, rose 6% to $8.6 billion, with half of the buyers in the quarter being first-time iPad owners.
On the AI front, Apple confirmed its acquisition of Q.AI for $2 billion. The startup reportedly specializes in reading facial micro-movements, potentially enhancing non-verbal interaction with AI assistants. Earlier this month, Apple also announced a partnership with Google to integrate Gemini models and infrastructure into its AI efforts, including a more personalized Siri expected later this year.
While Apple has historically been more conservative in AI spending compared to peers like Meta and Microsoft, R&D expenses climbed to $10.89 billion in the quarter, up from $8.27 billion a year earlier. Cook emphasized Apple’s competitive advantage in platform integration, saying the company has “absolutely the best platforms in the world for AI.”
The key takeaway is this: Apple is executing at a high level, with strong product demand and record-setting performance across key metrics. But the company is entering a more complex environment where supply chain constraints and component cost inflation could limit margin expansion in the quarters ahead.
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