Sales Down, Profit Up, Service is the Star
Apple reported its third-quarter financials on Thursday after the market closed. For the quarter, Apple reported revenue of $81.8 billion and a net quarterly profit of $19.9 billion, or $1.26 per diluted share, compared to revenue of $83.0 billion and a net quarterly profit of $19.4 billion, or $1.20 per diluted share, in the year-ago quarter.
The gross margin for the quarter was 44.5 percent, compared to 43.3 percent in the year-ago quarter. Apple also declared a quarterly dividend payment of $0.24 per share, payable on August 17 to shareholders of record as of August 14.
The good news first, Apple made nearly $20 billion in profit due to strong services income, very strong profit margins, and strong international sales. Apple hit the milestone of more than 1 billion paid subscriptions across all of its services, including Apple Music, iCloud, Apple News, Apple TV+, and more. Apple has steadily built up its services businesses and it is now the size of a Fortune 500 company and represents about 26% of Apple’s revenue. Services have a high-margin recurring revenue stream that combined with smart purchasing decisions push margins up and result in strong profits while facing declining sales of iPhone and Mac.
Apple posted strong but declining revenue for the iPhone with growth in developing areas of the world such as China and India. Revenue stemming from iPhone reached $39.67 billion, down 2% from $40.6 billion reported one year ago. iPad revenue is down 20% to $5.79 billion from $7.22 billion in Q3 2022. Mac revenue went down 7% to $6.84 billion from the year-ago $7.38 billion. Wearables, Home, and Accessories saw an increase to $8.28 billion, up 2% from $8.08 in the same period last year.
Services continue to be the stellar growth driver for Apple, boosting $21.21 in revenue for the June quarter. This is up 8% from the $19.6 billion reported last year.
Tim Cook said, “We are happy to report that we had an all-time revenue record in Services during the June quarter, driven by over 1 billion paid subscriptions, and we saw continued strength in emerging markets thanks to robust sales of iPhone. From education to the environment, we are continuing to advance our values, while championing innovation that enriches the lives of our customers and leaves the world better than we found it.”
Apple posted very strong results in the face of some market saturation and industry-wide declines in sales. Their emphasis on services is paying off with the one billion people that pay a regular fee to Apple for services. All in all, a very strong quarter for Apple. As is common nowadays, Apple did not provide much guidance for the 4th Quarter other than they foresee continued declines in Mac and iPad due to exceptional sales in the 4th quarter last year but they do expect both iPhone and Services to increase. Congrats to the Apple Team for another chapter in the strongest story in American business history!
