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Apple Reports Record Gross Margin Amid Slowing iPhone Sales
Apple is facing challenges in driving growth from its core iPhone segment, yet the company’s profitability is on the rise due to a thriving services division.
In the fiscal first-quarter earnings report revealed on Thursday, Apple reported a gross margin of 46.9%, marking the highest recorded margin in the company’s history. This figure surpasses the previous record of 46.6% attained in the period ending March 2024.
Apple’s services encompass a range of offerings including the App Store, advertising, payment services, AppleCare support, and other subscription-based products. The significant growth in these services has helped to counterbalance a decline in iPhone sales and the overall saturation of the global smartphone market.
According to Apple’s Chief Financial Officer Kevan Parekh, the aggregate growth from the services sector is beneficial to the company’s overall margins. During the recent earnings call, he highlighted this positive impact.
For the ongoing quarter, Apple anticipates a gross margin ranging from 46.5% to 47.5%.
iPhone sales experienced a slight dip of nearly 1% compared to the same period last year, with a notable decline reported in Greater China. Despite this, total revenue saw an increase of almost 4%, reaching $124.3 billion.
Service revenue also grew by approximately 4%, totaling $26.34 billion and exceeding market expectations. This segment now represents around 21% of Apple’s total revenue, with the company recently announcing that its services division has crossed the $100 billion annual milestone.
“We were thrilled to bring customers our best-ever lineup of products and services during the holiday season,” stated CEO Tim Cook in the press release.
Tim Cook’s focus on the services sector has notably shifted Wall Street’s perception of Apple, a company long recognized for its breakthrough devices. Historically, during the iPhone boom, Apple’s gross margin consistently ranged from 38% to 39%. However, as iPhone growth has tapered in recent years, the emphasis on services has allowed for a margin expansion, reaching 40% in 2021 and steadily increasing since.
Wall Street’s appreciation for profitability has positioned Apple favorably with investors. The company’s stock surged by 31% last year, outpacing the Nasdaq index, contributing to a significant market capitalization rise to $3.6 trillion.
Analysts at Argus recently stated that they believe Apple’s valuation merits a premium over historical comparisons, as the company distinguishes itself in offering high-end consumer electronics paired with lucrative digital services, especially as the era of on-device generative AI begins. They have recommended buying Apple stock.
Following the earnings report on Thursday, Apple shares increased by more than 3% in after-hours trading.
WATCH: Apple’s AI integration will play a crucial role in future developments.
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