Apple services and iPhone resilience fail to halt revenue decline

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An unexpectedly strong acceleration in Apple’s services business and a return to growth for the iPhone helped the US consumer tech group withstand the worst effects of weaker consumer demand in the latest quarter.

However, that was not enough to prevent a fourth consecutive period of overall revenue declines, leaving Apple’s shares more than 3 per cent lower in after-market trading on Thursday. Wall Street is digesting the stock’s decline since August, even though it has risen 42 per cent since the start of the year.

Apple’s latest figures were boosted by a solid performance in emerging markets, chief financial officer Luca Maestri said. But revenue from greater China fell 2.5 per cent, to $15.1bn, nearly $2bn below expectations, adding to worries that revived competition from Huawei and geopolitical tensions are weighing on one of its most important markets.

The tech group reported a 1 per cent fall in revenue from a year before, to $89.5bn, as demand for other gadgets such as Macs and iPads fell. Revenue would have risen had it not been for a 2 percentage point decline caused by exchange rate moves, Maestri said.

Apple’s earnings per share rose 13 per cent to $1.46 thanks to the higher margin from services, such as commissions from App Store sales and the share of search advertising revenue it receives from Google.

Wall Street had been expecting revenue of $89.2bn and earnings per share of $1.39.

Maestri told the Financial Times said the jump in services growth reflected “digital demand growth essentially everywhere”, with stronger sales for the App Store, advertising, iCloud, video and AppleCare.

Services revenue jumped 16.3 per cent in the quarter, double the rate of the preceding three months and far ahead of the 11.4 per cent most analysts had been expecting. The performance boosted Apple’s gross profit margin for the period to 45.2 per cent, a record for the September quarter, Maestri said.

Along with an accelerating shift to higher-margin services businesses, which account for 24.9 per cent of overall revenue, Maestri said Apple had benefited from an increase of only 2 per cent in operating costs.

The fiscal year that ended in September marked Apple’s first revenue decline since a 2 per cent slip in 2019, with sales down nearly 6 per cent at $298bn. Gross margins for the full year reached a record 44.1 per cent.

Hardware revenue began to stabilise after a first half in which supply shortages and a weakening macroeconomic backdrop dented sales. However, it was not enough to prevent the year ending on a further decline. Most analysts are expecting a return to growth of about 6 per cent in the current fiscal year as services become the main driver of growth and the iPhone 15 sparks a recovery in handset sales.