Apple has best revenue growth in more than three years: duties have fueled iPhone demand

Apple increased sales by 10% last quarter and beat analysts' expectations with the biggest backlash in at least four years. Investors were cheered by iPhone sales and demand in China, which returned to growth after several quarters of decline. Duties encouraged people to buy gadgets more actively, and the damage from trade wars was lower than the company predicted. However, Apple still lags behind in artificial intelligence and faces a number of other threats.

Apple's revenue for the third quarter ended June 28 was $94 billion - that's up 9.6 percent from the same period a year ago, according to reporting from the company. It's Apple's fastest sales growth since December 2021, reported CNBC. The company comfortably beat analysts' expectations: they were predicting an average of $89.3 billion, reported Bloomberg. The difference between Wall Street's forecast and the actual result was the largest (in percentage terms) in at least four years, reported Reuters data from LSEG.

The iPhone maker called revenue a record for the June quarter: this also applies to iPhone sales and earnings per share (EPS). The latter amounted to $1.57 - 12% higher than it was a year ago. Apple's EPS was also ahead of forecasts ($1.43 according to Bloomberg). 

The double-digit growth in money showed sales of iPhone, Mac computers and services. Thus, smartphones brought the company almost $44.6 billion, up 13.5% year over year, while analysts expected only $40.1 billion. The increase in iPhone revenue was the most significant in recent years, noted The Wall Street Journal.

Revenues from Services reached $27.4 billion - the highest in Apple's history - and also exceeded forecasts. Mac sales were also ahead of expectations ($8.05 billion, up 15 percent - the fastest of any product), but demand for the iPad, AirPods headphones and HomePod speakers fell short of Wall Street estimates.

Apple reported revenue growth in all markets, including China, up 4.3% to $15.4 billion, also better than Wall Street's expectations, though not by much ($15.2 billion). Revenue growth in the fourth quarter will be in the mid- to high-single digits (mid- to high-single digits - that is, about 5-9%), Apple predicted in a call with analysts after the report was released. That's better than analysts' estimates (3%), Bloomberg noted. Services growth will be similar to the third quarter, the company said.

U.S. duties have cost Apple $800 million in damages, CEO Tim Cook said. This is less than the company itself predicted three months ago ($900 million). Cook estimated the loss in the current quarter at $1.1 billion. At the same time, the duties in April and June helped boost the company's sales, as buyers rushed to upgrade before the expected price hike. However, that effect amounted to only one percentage point of the 10% increase in revenue, CEO Tim Cook told analysts.

Smartphone sales were bolstered by the "budget" iPhone 16e, which appeared in February, and Mac sales were strengthened by the introduction of the updated MacBook Air and Mac Studio in March, Bloomberg noted. Cook said the iPhone 16 lineup has proven more popular than the iPhone 15 in a comparable time frame.

"The surge in demand due to duties was in some ways expected given the uncertainty around pricing. However, it's important to consider the context: this is typically a slow quarter for Apple, and yet they performed exceptionally well with iPhone [sales] growth," said Emarketer analyst Jacob Bourne, who was quoted by Reuters.

Services remain the company's main growth driver, adding 13% and beating Wall Street estimates, according to Bloomberg. However, this trend faces a number of threats. In particular, regulators in various countries are demanding changes to App Store rules, which could potentially translate into lower revenue from apps and subscriptions. In the US, the DOJ is seeking to break Apple's agreement with Google, which sets the search engine as the default on Apple devices: this brings it about $20 billion each year. This amount represents only 6% of revenue but almost 20% of operating profit, as it is effectively cost-neutral, so investors are watching the process closely, the WSJ noted.

Apple is "significantly ramping up" its investments in artificial intelligence, Cook told presentation CNBC. Asked whether Apple sees a threat from potential AI devices, including the one being developed by ChatGPT creator OpenAI, Cook said he believes these gadgets would be a complement to the iPhone, but not replace it. "It's hard to imagine a world where the iPhone doesn't live," the Apple CEO noted.

Apple shares were up about 2.2 percent in extended U.S. trading. The stock accelerated after the company provided an outlook for the current quarter, Reuters noted. The main session ended 0.71% lower on July 31.

Compared to the beginning of the year, Apple shares are now 17% cheaper. They have a total of 51 recommendations from analysts, and most still advise buy: 24 rating Buy and nine Overweight, shows MarketWatch. Another 15 think the stock is worth holding (Hold), while three think it's worth selling (Sell).

This article was AI-translated and verified by a human editor