Apple Opens Fiscal 2025 With Strong Profitability Despite iPhone Weakness: Services and Mac Step Up
Introduction:
Apple Inc. (Nasdaq: AAPL) opened fiscal year 2025 with solid financial results, despite mixed performance across its product portfolio. The company reported $124.3 billion in revenue for the first quarter, a 4% increase year-over-year. Net income rose to $36.3 billion, up 7% from the same period last year. However, sales of the iPhone — Apple’s flagship product — declined by 1%, signaling a continued shift in the company’s revenue composition.

Regional performance overview:
In the Americas, revenue increased by 4% to $52.6 billion, supported by higher iPhone and Services sales. Europe delivered even stronger growth, climbing 11% to $33.9 billion, benefiting from favorable currency effects and increased demand for services. In contrast, Greater China posted an 11% decline to $18.5 billion, largely driven by a downturn in iPhone sales — a concerning trend given the region’s strategic importance. Japan surprised to the upside, with revenue climbing 16%, primarily due to strong performance in iPhone and Services. The Rest of Asia Pacific remained relatively flat with a modest 1% gain.

Shift in revenue composition:
Services continued to be the primary growth engine, generating $26.3 billion in revenue — a 14% increase from the prior year. The growth was driven by advertising, the App Store, and cloud services. The Mac division saw a 16% jump to $9 billion, propelled by robust demand for new laptops. iPad revenue also increased by 15% to $8.1 billion, thanks to refreshed iPad Air models. Meanwhile, revenue in the Wearables, Home, and Accessories segment declined by 2% to $11.7 billion. iPhone revenue came in slightly lower at $69.1 billion versus $69.7 billion last year, underscoring the ongoing deceleration in the product’s growth.

Margins and profitability:
Total gross margin for the quarter stood at $58.3 billion, with the company achieving a consolidated gross margin rate of 46.9%, up from 45.9% a year ago. Product gross margin remained stable at 39.3%, while Services gross margin expanded to 75%, up from 72.8%, reflecting a more favorable services mix despite higher delivery costs.

Bottom line results:
Net income reached $36.3 billion, up from $33.9 billion a year earlier. Diluted earnings per share were $2.40, compared to $2.18 in Q1 2024. Apple maintained an effective tax rate of 14.7%, lower than the U.S. statutory rate, driven by tax benefits from stock-based compensation, favorable foreign income provisions, and currency-related adjustments following updated Treasury regulations.

Capital allocation strategy:
Apple continued its aggressive capital return program, repurchasing $23.6 billion worth of its own shares during the quarter and distributing $3.9 billion in dividends. As of quarter-end, the company held $30.3 billion in cash and cash equivalents, supported by an additional $111 billion in marketable securities — underscoring its unparalleled liquidity and financial flexibility.

Looking ahead:
Despite headwinds in iPhone sales and weakness in the Chinese market, Apple remains resilient thanks to accelerating growth in Services and strong contributions from the Mac and iPad product lines. New product launches, including updated MacBook Pro, Mac mini, and iPad mini models, coupled with a robust services infrastructure, are expected to support earnings going forward. While regulatory pressures in the U.S. and Europe continue to pose challenges, Apple’s operational execution and balance sheet strength position it well for sustained performance in a volatile global environment.