Apple’s latest quarterly results pointed to continued strength in iPhone demand and a forecast for what the company said could be its biggest quarter yet, but shares fell in after-hours trading as investors focused on cost pressures, slower Services growth and profit margin guidance.
The company reported performance that exceeded expectations and issued guidance for the holiday quarter. It also forecast revenue growth of 7% to 10% in December, which analysts said would be an important test of whether sales momentum can be sustained while profitability holds.
Analyst reaction highlights profitability focus
Josh Gilbert, Lead Analyst for APAC and the Middle East at eToro, said Apple had “plenty to like” in its first results under CEO John Ternus, including a beat versus revenue expectations and a target that implies continued growth. However, Gilbert noted that the market’s immediate response suggested that demand alone was not enough.
According to Gilbert, investors were increasingly focused on profitability as rising costs and slowing Services growth weigh on margins. He said selling more devices is “a harder way to generate profits” than expanding higher-margin subscription revenue.
iPhone demand and Services growth outlook
Apple’s hardware business remained a key driver. The company said iPhone sales rose 17% in the September quarter, which preceded the launch of the newly referenced iPhone Duo. It also stated that product revenue contributed nearly US$9 billion in additional year-on-year sales, described in the release as more than three times the increase generated by Services.
Apple’s Services growth slowed from approximately 15% a year earlier to just under 10%. The company forecast Services growth of 8% to 9% for the holiday quarter. Its gross margin guidance of 45% to 46% was also highlighted, representing a decline from nearly 48% in September, a factor that Gilbert and investors were said to be watching for implications on profitability.
China, foldables competition and AI spending in focus
China remained another area flagged in the results review. Apple reported that sales increased 21% in the region, but that revenue was about US$1.2 billion below expectations. The release also referenced the iPhone Duo and said it faces significant competition from Huawei, which holds an estimated 60% share of China’s foldable smartphone market.
Investors were also watching Apple’s artificial intelligence spending. The company said its research and development spending increased 32% during the quarter. However, Gilbert said the market still wanted to see how those investments would translate into meaningful revenue growth, adding that expanding AI access through iCloud+ could be a route to monetisation if Apple demonstrates a connection to stronger Services growth over time.
Holiday quarter seen as a key profitability test
Gilbert said Apple had shown demand for its products remains strong, but that the challenge is turning that demand into sustainable, profitable growth. With margins under pressure and AI investment increasing, he described the holiday quarter as a key test for Apple’s ability to deliver on both growth and profitability goals.
