Apple held its Q3 2023 earnings call covering the second calendar quarter of the year recently. Led by Apple CEO Tim Cook and CFO Luca Maestri, the call was an opportunity to share insights on the company’s recent product sales, service results, future plans, and projected revenue impacts.
Here are some key highlights for those unable to tune in.
iPhone, iPad, and Mac Sales
A decline was observed in iPhone, iPad, and Mac revenue across all three categories. iPhone revenue stood at $39.7 billion, slightly down from the $40.7 billion earned in 2022. iPad revenue was $5.8 billion, down from $7.2 billion in the same quarter the previous year.
Maestri explained that the iPad sales drop was due to a tough comparison with the previous year when a new iPad Air had been introduced. Mac revenue was $6.8 billion, down from $7.4 billion, although nearly half of Mac buyers were new to the product.
The Wearables, Home & Accessories category saw growth, earning $8.3 billion, a 2% increase from $8.1 billion in the same quarter last year. Two-thirds of new Apple Watch customers during the quarter were new to the product. The wearables sector has nearly the size of a Fortune 100 company, earning $40 billion in the last 12 months.
Cook expressed high anticipation for the forthcoming Vision Pro. “Everyone who has gone through the demos has been blown away,” he said, hinting at a potential launch next year.
When quizzed about Apple’s focus on AI, Cook reaffirmed that AI and machine learning are “core fundamental technologies integral to virtually every product” made by Apple. He noted that Apple had been exploring AI (including generative AI) for years, and its continued development was “absolutely critical”. Cook suggested that Apple would continue to announce AI-related advancements as they come to market.
Apple set a new record in Services revenue during the quarter, which it attributes to over a billion paid subscriptions. Service revenue touched $21.2 billion, up from $19.6 billion in the previous year’s quarter. Subscriptions have grown by 150 million in the past year, more than doubling over the last three years. Record-breaking revenue was noted in the categories of cloud, video, AppleCare, and payments, with Q2 records set for the App Store, advertising, and Apple Music.
Research & Development (R&D)
Apple’s R&D spending has seen slower growth due to deliberate controls on spending during recent uncertain quarters. The company has decelerated some of its expense growth by slowing hiring, but intends to continue managing expenditures carefully.
For the coming September quarter, Apple predicts a similar year-over-year (YoY) performance as the June quarter if the macro outlook doesn’t worsen, leading to a YoY revenue impact of over 2%.
iPhone and Services revenues are expected to rise compared to June, while Mac and iPad revenues are predicted to drop into double digits. There are no notable updates expected for iPads or Macs, with no plans to refresh the iPad Pro or popular Mac models until 2024.
Despite this, Apple is expecting a gross margin of 44-45%, attributed by Maestri to a strong product mix, cost savings, and Services.