ii view: Apple sales exceed forecasts as AI features go live

Third-quarter results to 30 September

• Revenue up 6% to $94.9 billion (£73 billion)
• Adjusted earnings up 12% to $1.64 per share
• Dividend of $0.25 per share (19.25p), unchanged from Q3

Chief Executive Tim Cook commented: 

“During the quarter, we were excited to announce our best products yet, with the all-new iPhone 16 lineup, Apple Watch Series 10, AirPods 4, and remarkable features for hearing health and sleep apnea detection. And this week, we released our first set of features for Apple Intelligence, which sets a new standard for privacy in AI and supercharges our lineup heading into the holiday season.”

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ii round-up:

Apple Inc (NASDAQ:AAPL) detailed sales that beat Wall Street estimates, with the smartphone maker flagging a recent first software release for the group’s AI, or intelligence features available on recent device models.

Fourth-quarter sales to late September climbed 6% to $94.9 billion, exceeding analyst estimates of $94.6 billion. Features for Apple Intelligence include prioritising and summarising notifications, as well as using what it knows about the user to simplify and accelerate everyday tasks. Headline profit included a one-off charge in relation to an EU tax decision. 

Shares in the Dow Jones and Nasdaq giant fell 2% in post results trading having come into this latest news up around 17% year-to-date. That’s similar to the tech index itself in 2024 but behind a 22% gain for Android phone software maker and Google owner Alphabet Inc Class A (NASDAQ:GOOGL). 

Sales of Apple’s core iPhone product climbed 6% from a year ago $46.2 billion. The numbers included around a week’s worth of sales for the new iPhone 16 released in September.  

Service sales, including those for Apple music and Apple TV, rose 12% year-over-year to a new all-time quarterly record of $24.97 billion.   

Revenues for Mac PCs improved 1.7% year-over-year to $7.7 billion. iPad revenues improved 8% to $6.9 billion, although sales for Wearables, Home and Accessories, including the Apple watch, fell 3% to $9 billion. 

Geographically, and as with the previous quarter, sales improved for every region apart from China – Apple’s third biggest seller after the Americas and Europe.   

The Tim Cook-led company returned $29 billion to shareholders during the quarter, including an unchanged dividend of $0.25 per share. 

First-quarter results are likely to be announced early February. 

ii view:

Started in 1976, Apple devices and services today compete against offers from Samsung, Meta Platforms Inc Class A (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), Spotify Technology SA (NYSE:SPOT), and Netflix Inc (NASDAQ:NFLX). iPhone sales remain by far its biggest category at 52% during 2023, followed by Services at 22%, Wearables, Home and Accessories at 10%, and the balance of 16% split relatively evenly between iPad and Mac PC sales. 

For investors, concerns about product innovation, particularly in relation to the core iPhone, have been heard. Elevated borrowing costs could be pushing some consumers towards cheaper rival options. Geopolitics and tensions between the US and China may be causing Chinese consumers to look elsewhere, while a forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap.

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More favourably, the tying in of customers using its services on their Apple devices generates high customer loyalty. Product innovation now includes the rollout of AI based intelligence features and the previous introduction of a new 3D headset. Product and geographical diversity exist and also include exposure to payment services, while the dividend, although not a key attraction, has been increased consecutively for the last 10 years and the shares yield a very modest 0.4%.

On balance, and while falling Chinese sales offer some caution, the use of its products by countless consumers globally looks to continue justifying its place in many diversified investor portfolios. 

Positives:

• Diverse geographical markets
• Strong customer loyalty

Negatives:

• Dependency on iPhone sales
• Strained relations between the West and China

The average rating of stock market analysts:

Buy