Apple Earnings: Strong Beat With EPS Upside but China Questions Remain

February 2, 2024 / Ben Bajarin

Apple had a strong beat and curious guide, which we will address. China has been interesting to watch and remains a concerning point.

Key Takeaways

  • Solid beat with gross margin strength and EPS Upside
  • Strong quarter for iPhone even with China weak
  • No new iPads launched in 2023 made a tough compare and a down Q4
  • Guidance provided for March indicates a $5B decline YoY. However, commentary mentions sell-in boost Q2 23 that was previously not known but explains the March quarter comp from 2023


Overall it was a strong holiday quarter for Apple. Two a few things are worth making observations about.

First, there was concern after hours about the March 2023 guidance looking like a $5B decline driven by iPhones. It was later clarified that the year ago March quarter had around a $5B push from the Dec Q to the March Q due to COVID shut downs.  Which means we should expect management to point this out during the March quarter and specific the unusual YoY compare.

People pointed out iPads, which were down but also notable no new iPads were launched last year which again made for a hard YoY compare.

Lastly, China makes for an interesting story as several interesting factors are worth watching in China.  The first is the re-emergance of Huawei.  Apple was one of the most significant benefactors of the Huawei decline in China and Apple absorbed a good portion of Huawei’s share in the premium TAM of China. It will be interesting to see if Huawei can raise to prominence again and if that impacts Apple in any way.  The other dynamic in China is a clear elongating of the handset replacement cycle which is causing the market to drag at points of the year when it typically doesn’t.  Lastly, even though Apple is guiding some softness for the March Q of 2024 this is typically a better quarter for China due to Chinese New Year.  So it will be interesting to see how China is for Apple in this coming quarter.

Financial Performance

  • Revenue: Apple reported a December quarter revenue of $119.6 billion, a 2% year-over-year increase. This outperformance was driven by better-than-expected results across several segments: Mac (13% above consensus), Wearables (2% ahead of estimates), Services (1% ahead of estimates), and iPad (1% above estimates), slightly offset by slightly weaker iPhone results (1% below estimates).
  • Gross Margin: Apple achieved a gross margin of 45.9%, approximately 30 basis points ahead of expectations and at the high end of its guidance range. This margin performance and in-line operating expenses resulted in a 5-cent EPS beat versus consensus. Management has guided toward gross margins between 46%-47% for the March quarter, hinting at continued margin strength.
  • Guidance: For the March quarter, Apple has guided to approximately $90 billion in revenue, indicating flat performance year-over-year when excluding prior pent-up demand recapture (or a 10% decline as reported). Despite this, Services are expected to grow around 11% year-over-year.

Additional Notes

Market Challenges: Apple’s product demand, particularly in China (with a 13% year-over-year decline), appears to be challenged in the near term. However, emerging markets outside China are outperforming, and Apple’s Service segment continues to see low double digits growth year-over-year.

Generative AI Innovations: Apple plans to unveil its first Gen AI-enabled software upgrade at the some point this year. Management’s discussions suggest significant advancements in Generative AI that could catalyze growth in FY25, with revenue and EPS projections.

Installed Base and Spend per User: Apple disclosed a record high installed base of over 2.2 billion active devices as of the end of CY23, up by 200 million units year-over-year, showcasing the company’s ability to attract brand switchers and limit churn.

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