Apple earnings recap: Tim Cook talks 'staggering' iPhone demand, memory shortage, and China rebound
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Apple's earnings are in, and as promised, the iPhone maker put up some big numbers.
CEO Tim Cook said iPhone demand was "staggering" and "unprecedented" in the holiday quarter. Both Apple's reported revenue of $143.76 billion and earnings per share of $2.84 handily beat analyst estimates.
The company also put concerns around Greater China to rest for now, reporting revenue of $25.53 billion for the region, up 38% year over year and clearing the consensus estimate of $21.82 billion. Cook vowed last quarter to turn around a decline in China.
Hot on the heels of its big AI deal with Google, which will help power Apple's AI efforts, including its long-awaited Siri overhaul ("coming this year"), Cook said investors should think of the relationship between Google and Apple's Foundation Models as a "collaboration."
Apple is "very happy" with the Google partnership, the CEO added.
One challenge Apple is facing is the memory shortage. Prices for memory — a key component in chips and devices — have soared amid the AI boom, and Cook said he expects memory prices to continue to increase. Asked if Apple would consider raising prices amid rising memory costs, Cook said he didn't want to speculate.
Apple's stock price rose about 2% after hours following the results.
Scroll on for the full play-by-play from Apple's earnings call with analysts:
Apple's stock was hovering up around .5% to .75% after hours through much of the call, but it jumped further in the final minutes of the analyst call. The stock was trading up around 1.5% after hours as the call ended.
Cook sees Apple's in-house silicon and chips as a "major competitive advantage" that could provide cost-saving opportunities.
Apple's CFO says the differentiation of its silicon is "important for our products as well, and give us more control over our roadmap."
Apple is asked if it sees its AI efforts going more toward on-device AI or cloud-based AI.
Cook says, "We see both being important." Apple doesn't see it as an either/or, Cook adds.
In terms of capacity, Cook says it's hard to estimate with precision what demand will be. Apple either has or is putting capacity in for it.
Apple sees "huge opportunity" in the Indian market, Cook says. Apple's CFO chimes in to say it saw double-digit growth in its install base in India.
Sure, there's a memory shortage, and prices are rising. But Apple can surely throw its weight around as a tech giant, right? So could that help it scoop up market share from rivals who might not have the same leverage?
Cook declines to answer specifics there, but he does mention Apple's Mac share grew when viewed annually.
For the December quarter, Apple outlined an expected $1.4 billion tariff hit. The company says it landed "roughly in that range."
How should investors view Apple's AI strategy as it partners with Google, and the relationship with Apple's Foundation Models? Cook says it should be viewed as a "collaboration."
Is Apple willing to raise iPhone, Mac, and iPad prices if memory costs are expected to continue to increase? Cook says he wouldn't want to speculate.
Supply chain constraints for the March quarter are fueled by the increased demand Apple saw in the holiday quarter.
"The constraint, as I've mentioned, is due to the advanced node capacity," Cook says. "It's really a result of growing so well in Q1 with the 23%."
Talking about the smartphone market, the Apple CEO says Apple believes it "gained share" in the December quarter, based on data the company has access to.
The company is tight-lipped on the Google deal (no surprise there). Although Apple isn't releasing the details of its partnership with Google, Cook says Google will provide the "most capable" foundation for Apple's foundational models.
"We can unlock a lot of experiences and innovate in a key way due to collaboration," Cook says. In typical Apple fashion, Cook emphasizes it will maintain the user privacy it's known for.
While talking about the Google partnership, Cook says "AFM" before quickly clarifying he means Apple's Foundation Models.
Cook is optimistic about the value that Apple's investment in AI will generate. He adds that the company is "very happy" about its Google partnership.
"We're bringing intelligence to more of what people love, and we're integrating it across the operating system in a personal and private way," Cook says.
Memory prices have been way up in recent months, largely due to the AI race and their use in chips.
Apple says it expects memory prices to continue to increase.
Apple set a record for China revenue and returned to growth in the holiday quarter.
During the quarter, traffic in Chinese stores grew by double digits, he says, while the installed user base grew to a record high. It was fueled by both upgraders and switchers. Cook cites a survey that placed iPhone in the top three smartphones in urban China.
"Overall, great quarter in China. We could not be more happy with it," Cook says.
The Apple CEO emphasizes that the iPhone 17 exceeded expectations. Cook says Apple experienced "staggering" demand for the iPhone 17 lineup. But Apple is seeing less flexibility in its supply chain.
Cook fields the first question.
Apple says it faced a "very difficult" compare against M4 Macbook Pro, Mac mini, and iMac launches last year. However, emerging markets demonstrated growth, pushing the installed user base to an all-time high.
For iPad, the company saw an all-time high for upgraders and its user base. The company says supply constraints on the AirPods Pro 3 hindered growth, as revenue is down 2% year-over-year.
iPad revenue was $8.6 billion, up 6% year over year. Mac revenue was $8.4 billion, down 7% year over year.
Apple's CFO provides some color on guidance for the coming quarter:
- March quarter revenue to grow 13% to 16% year over year
- Services revenue to grow at a year-over-year rate similar to what Apple reported in the holiday quarter
- Gross margin expected to be between 48% and 49%
- Operating expenses between $18.4 billion and $18.7 billion
- Tax rate to be around 17.5%
CFO Kevan Parekh talks through the holiday results.
Apple's stock price is roughly flat after hours.
Apple is making good on its $600 billion promise to the US with its academies and work with American business, including sourcing 20 billion US chips in 2025.
"In the year since we made our initial commitment, we're making great progress," Cook says.
"We're working with Micron, which broke ground on a new advanced chip packaging and test facility, and we continue to advance the development of an end-to-end silicon supply chain across the country, sourcing 20 billion US chips in 2025," the CEO says.
Micron is a longtime Apple supplier based in Boise, Idaho.
Apple's services business has grown exponentially under Cook.
The segment brought in $30.01 billion in revenue last quarter, up 14% year over year.
Apple CEO says the Google deal "will help power future Apple intelligence features, including a more personalized Siri coming this year."
"We're incredibly excited for what's to come with so many new experiences to unlock," Cook says.
The Apple Watch is becoming a key health accessory, Cook says.
More users are tapping into the health features offered by the latest Apple Watch lineups. A recent survey found that an increasing number of users are wearing their watches to sleep.
That's a new record.
Mac revenue was down year over year. But the Mac install base reached a new all-time high, Cook says. He says nearly half of Mac customers in the holiday quarter were new to the product.
Tim Cook calls the demand for iPhone "simply staggering," with all-time revenue records across every geographic segment.
"Apple's December quarter results underscore our relentless commitment to innovation, to our customers and to our mission to build the best products and services in the world," Cook says.
Apple CEO Tim Cook, CFO Kevan Parekh, and other executives are on the call. They'll begin by reading prepared remarks before turning to a Q&A with analysts.
Apple had a roaring quarter, but two of its categories saw revenue declines year over year: Mac and Wearables, Home, and Accessories (which includes Apple Watch and AirPods).
Mac revenue was down 6.7% year over year; Wearables was down 2.2% year over year.
Cook praised Apple's performance in China, a key region for the tech giant.
The company "saw a lift that, frankly, was much greater than we thought we would see," he told CNBC. Both current iPhone users who upgraded and those who switched to Apple drove a return to growth for the holiday quarter.
"We set an all-time record for upgraders in mainland China, and we saw double-digit growth on switchers," Cook said.
- Products revenue $113.74 billion, +16% y/y, estimate $107.69
billion - iPhone revenue $85.27 billion, +23% y/y, estimate $78.31
billion - Mac revenue $8.39 billion, -6.7% y/y, estimate $9.13 billion
- iPad revenue $8.60 billion, +6.3% y/y, estimate $8.18 billion
- Wearables, home and accessories $11.49 billion, -2.2% y/y,
estimate $12.13 billion - Services revenue $30.01 billion, +14% y/y, estimate $30.02
billion - Greater China rev. $25.53 billion, +38% y/y, estimate $21.82
billion - Americas rev. $58.53 billion, +11% y/y, estimate $59.06
billion - Europe revenue $38.15 billion, +13% y/y, estimate $36.82
billion - Japan revenue $9.41 billion, +4.7% y/y, estimate $9.24 billion
- Rest of Asia Pacific revenue $12.14 billion, +18% y/y,
estimate $11.39 billion - EPS $2.84 vs. $2.40 y/y, estimate $2.68
- Total operating expenses $18.38 billion, +19% y/y, estimate
$18.18 billion - Research and development operating expenses $10.89 billion,
+32% y/y, estimate $10.14 billion - SG&A operating expense $7.49 billion, +4.4% y/y, estimate
$8.03 billion - Gross margin $69.23 billion, +19% y/y, estimate $65.5 billion
- Cash and cash equivalents $45.32 billion, +50% y/y, estimate
$49.73 billion - Cost of sales $74.53 billion, +13% y/y, estimate $71.78
billion - Total current assets $158.10 billion, +19% y/y, estimate
$164.56 billion - Total current liabilities $162.37 billion, +12% y/y, estimate
$170.09 billion
Hours before reporting its earnings, news crossed that Apple had acquired Q.ai, an Israeli AI startup. While Apple didn't publicly disclose the value of the deal, one of Q.ai's investors, GV (formerly known as Google Ventures), wrote that it's the second-largest acquisition in the iPhone company's history. Although it's unclear how plans to use Q.ai's tech, the startup filed a patent application for "detecting and utilizing facial skin micromovements" in 2023.
The Financial Times reported that the deal valued the startup at nearly $2 billion. The founders, including CEO Aviad Maizels, will join Apple, as confirmed by statements from both companies. Maizels previously founded PrimeSense, a startup that was acquired by Apple in 2013.
"Q is an exceptional company, pioneering new and creative ways to use imaging and machine learning technologies. We are excited to acquire the company led by Aviad and even more excited about what lies ahead," Johny Srouji, Apple's senior vice president of hardware technologies, told Israeli news outlet Ynet News.
Fabrice COFFRINI / AFP via Getty Images
Wall Street hasn't forgotten Tim Cook's remarks during the last earnings call. Cook predicted a historic holiday quarter for the company, and analysts expect just that.
Strong iPhone performance in China and continued double-digit growth in its services business will likely fuel a successful Q1, Forrester analysts said.
Apple and Google announced a partnership earlier this month that would allow Gemini to power the highly anticipated Siri upgrade. The announcement eased concerns about Apple's lagging position in the AI arms race. Despite big promises of Apple Intelligence and a more conversational Siri nearly two years ago, its tech has been met with lackluster reactions.
By bringing Google on board, some analysts see it as the boost Apple has been needing for its AI strategy.
VCG/VCG via Getty Images
As my colleague Joe Ciolli pointed out, if there's a lesson from tech earnings season so far, it's that investors will overlook huge AI spending if the core business is doing well.
For Apple, that's still the iPhone, and investors will want to know how strong holiday demand for the latest devices was. While Apple's AI capex isn't as high as some of its Big Tech peers, a robust core business will likely continue to ease concerns about Apple's AI fumbles.
For decades, Apple has been associated with product innovation. Stumbles in AI and its niche $3,500 Vision Pro mixed-reality headsets have dented that image.
Forrester VP principal analyst, Dipanjan Chatterjee, said the big question is whether Apple can "find the mojo that made it an industry disruptor in the first place."
Any updates on rumored smart glasses or alternative form factors will "shed light on Apple's long-term prospects," Chatterjee added.
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Chris Brigati, SWBC's chief investment officer, said there will be heightened scrutiny on Apple's AI strategy, and there's a risk that investors aren't satisfied with the company's updates to its approach.
"The tone from this week's Magnificent 7 earnings reports should be solid, though not evenly distributed across the group," Brigati said on Wednesday. "Apple, however, faces the toughest hurdle: after a wave of upward estimate revisions, it's the name most likely to struggle to clear the bar, especially as investors raise questions about its AI strategy."
UBS analysts said that while iPhone sales should be strong, they'll "take a back burner to rising memory costs."
"Despite supply agreements that likely mitigate the impact of rising memory costs in the Mar qtr guide, risk does increase in the June and Sept qtrs as production of the next gen of iPhones ramp, impacting cost and margins," UBS wrote in a January 20 note.
Stuart C. Wilson/Getty Images
Morgan Stanley analyst Erik Woodring said he expects weak stock price action after earnings on Thursday, as he expects investors to be underwhelmed by iPhone sales.
But he's still bullish on the stock for the year ahead, with a price target of $315 a share, representing upside of about 23%.
"Looking beyond the short-term, we continue to believe Apple will outperform in 2026 as it re-launches an upgraded Siri/Apple Intelligence (February '26 and WWDC 2026 in June), introduces its most innovative iPhone in 10+ years (Foldable), becomes first to market with a 2nm-powered smartphone (iPhone 18 family)," Woodring wrote in a client note on Monday.
Analyst Michael Ng says Apple will post earnings largely inline with consensus on Thursday, but that the stock is set to rally as the market will soon come around to its AI strategy.
Ng's price target is $320 a share, about 25% upside from current levels.
"AAPL stock is down 5% YTD to start C2026 likely on commodity cost inflation and App Store concerns, but we view the stock weakness as a buying opportunity into a continuation of the iPhone refresh cycle," Ng said in a January 20 note.
"Apple's partnership with Google Gemini for Siri and continued iPhone demand growth against the backdrop of AI-native consumer hardware launches should demonstrate to the market that the iPhone will remain the consumer device of choice for accessing new AI tools, clearing overhangs related to competition."
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Tech analyst Dan Ives said to look for updates on Apple's AI strategy.
"With the company finalizing the choice of Google Gemini to back Siri in its AI strategic push, it's time for Apple to lay down the blueprint to accelerate its AI strategy in 2026 which leads up to a much-anticipated Siri refresh this spring and WWDC in June," Ives said in a client note Wednesday, referencing the World Wide Developers Conference.
He thinks the stock could enjoy a big rally if investors start to apply an AI premium, as they have for other firms that have touted involvement in the burgeoning technology.
"We believe no 'AI premium' which could be worth $75-$100 per share is factored into Apple's stock at current prices," Ives wrote.
First quarter
- Revenue estimate $138.4 billion
- Products revenue estimate $107.69 billion
- Mac revenue estimate $9.13 billion
- iPad revenue estimate $8.18 billion
- Wearables, home and accessories estimate $12.13 billion
- Services revenue estimate $30.02 billion
- Greater China rev. estimate $21.82 billion
- Americas rev. estimate $59.06 billion
- Europe revenue estimate $36.82 billion
- Japan revenue estimate $9.24 billion
- Rest of Asia Pacific revenue estimate $11.39 billion
- EPS estimate $2.68
- Total operating expenses estimate $18.18 billion
- Research and development operating expenses estimate $10.14 billion
- SG&A operating expense estimate $8.03 billion
- Gross margin estimate $65.5 billion
- Cash and cash equivalents estimate $49.73 billion
- Cost of sales estimate $71.78 billion
- Total current assets estimate $164.56 billion
- Total current liabilities estimate $170.09 billion
Second quarter - Capital expenditure estimate $3.54 billion