Apple’s Strongest Quarter

Apple announced on Thursday, after the market close, its fiscal second-quarter results, with Tim Cook stating that this was “the best March quarter in Apple’s history.”

Revenue came in at $111.18 billion, up 17% year over year. Earnings were $2.01 per share. Both figures beat analyst expectations. On top of that, guidance for the next quarter was so strong that the stock jumped +3.2% the following day.

THE NUMBERS

Let’s start with the basics. Analysts were expecting $109.66 billion in revenue and $1.96 per share in earnings. Apple delivered $111.18 billion and $2.01 per share.

Breaking it down by segment:
iPhone generated $57 billion, up 22%, with the iPhone 17 lineup becoming, according to Cook, “the most popular lineup in Apple’s history.”
Mac brought in $8.4 billion, iPad $6.9 billion, and Wearables $7.9 billion. All exceeded expectations.

There is also a segment increasingly stealing the spotlight: Services. This includes the App Store, iCloud, Apple TV+, and Apple Pay, which reached $31 billion, up 16% year over year.

This matters because Services carry significantly higher margins than hardware. As a result, total gross margin rose to 49.3%, up from 48.2% in the previous quarter. A very strong figure.

Then comes the big surprise: China. Revenue from the region surged 28% to $20.5 billion, compared to expectations of $18.9 billion. In short, Apple, which had struggled in China for years, delivered one of its strongest quarters ever there.

Additionally, the company announced a $100 billion share buyback program and increased its dividend by 4% to $0.27 per share.

GUIDANCE

The results were strong, but what truly excited Wall Street was the guidance for the current quarter.

Analysts were expecting revenue growth of around 9.3% to 9.5%. Apple guided for +14% to +17%.

Why so strong? Two main reasons. First, demand for Apple’s products is extremely high right now. Cook explicitly stated that the issue is not demand, but supply. In other words, Apple cannot produce enough to meet demand. Second, the MacBook Neo, the new low-cost laptop priced at $599, has sold out in many stores. Cook noted that they underestimated how strong demand would be.

However, there is a key concern. Memory costs are rising. Cook said prices will increase significantly this quarter and will have a growing impact in the periods ahead. The Mac mini has already seen a price increase, from $599 to $799. Still, guidance for gross margins, at 47.5% to 48.5%, came in above expectations.

LEADERSHIP CHANGE AND THE AI ERA

Tim Cook, who has led Apple for 15 years, will step down in September. Taking over is John Ternus, who appeared for the first time on an earnings call and said he will maintain the same discipline and methodical approach.

Ternus inherits a company in excellent financial shape, but with a key challenge ahead: defining its AI strategy. Apple has lagged in some core AI features, including a revamped Siri.

That said, its strategy appears different from competitors. While other major tech companies are expected to spend massive amounts on AI infrastructure, Apple is positioning itself as the platform through which users experience AI.

Devices like the Mac mini and Mac Studio are already widely used for running AI models locally, while the MacBook Neo serves as an entry point for new users. With this approach, Apple does not necessarily need to win the AI model race, it just needs to offer the best way to use them.