In this article, Apple is facing challenges in driving growth from its primary iPhone unit, but its profit margin continues to rise due to a thriving services business. In the fiscal first-quarter earnings report, Apple disclosed a record gross margin of 46.9%, surpassing the previous high of 46.6% in March 2024.
Apple’s services segment encompasses App Store transactions, advertising, payments, AppleCare support, and other subscription services. The growth in these areas has offset the decline in iPhone sales and market saturation.
During the earnings call, Apple CFO Kevan Parekh mentioned that the services business contributes positively to the company’s overall margin. Apple projected a gross margin of 46.5% to 47.5% for the current quarter.
While iPhone sales decreased by nearly 1% in the latest quarter, total revenue increased by almost 4% to $124.3 billion. Services revenue also grew by about 4% to $26.34 billion, surpassing analysts’ expectations and now representing approximately 21% of Apple’s total revenue.
Apple’s focus on services under CEO Tim Cook has shifted the perception of the company on Wall Street, which traditionally emphasized its iconic devices. With iPhone growth slowing down, Apple’s expansion into services has led to an increase in gross margin, reaching 40% in 2021.
Due to Apple’s ability to meet investor expectations, the stock price surged by 31% last year, outperforming the Nasdaq, and the company’s market capitalization reached $3.6 trillion. Analysts at Argus recommend buying Apple stock, citing its premium electronic devices, high-margin digital services, and advancements in on-device generative AI.
Following the earnings report, Apple’s shares rose over 3% in after-hours trading.
