Key Numbers
Apple’s Q1 FY25: China Headwinds Test Growth as Company Awaits Stimulus Impact & Apple Intelligence Rollout
Apple delivered record Q1 FY25 revenue of $124.3 billion, up 4% year-over-year, driven by strong Services growth (+14%) and robust Mac and iPad performance. While iPhone revenue remained flat and China sales declined 11%, the company saw encouraging results from its new Apple Intelligence features and continued strength in emerging markets, particularly India. With an expanded install base of 2.35 billion active devices and record upgrader numbers, Apple maintained strong margins while laying groundwork for AI-enhanced features across its product line.
Key Takeaways
- Apple Intelligence Impact: Markets where Apple Intelligence was available showed stronger iPhone 16 performance compared to markets without it. According to Apple, the feature is driving notable user engagement across multiple capabilities including Writing Tools, Image Playground, and Clean Up. It is worth noting, however, that those markets where Apple Intelligence has been released usually show a good upgrade cycle the quarter following the launch of the new iPhone models.
- China Challenges: Greater China revenue declined 11% YoY, with over half the decline attributed to channel inventory changes. The company noted new national stimulus programs announced in January 2025 that could impact future quarters. Historically, Chinese consumers have shown more interest in new hardware design elements and features than those driven by software. This coupled with consumers waiting for Chinese New Year promotions as well as the arrival of Apple Intelligence in April might have contributed to the softness in Q1.
- Emerging Markets Strength: Record revenues in multiple emerging markets, with particular strength in India where iPhone was the top-selling model. The company is expanding retail presence with four new stores planned in India.
- Services Momentum: The services segment hit another record with strong growth across all geographic regions. Paid subscriptions exceeded 1 billion, with both transacting and paid accounts reaching new highs.
- Mac & iPad Recovery: Both segments showed strong growth, with Mac up 16% and iPad up 15%. Over half of iPad purchasers were new to the product, indicating successful market expansion
What’s Significant
- During the Q&A, Cook provided interesting insight into their manufacturing approach in India. Apple is pursuing a dual strategy – manufacturing both for domestic market and export which mean manufacturing diversification which could come in handy as the current administration imposes tariffs on China. Cook added that manufacturing needs certain economies of scale to make sense in-country, which suggests that Apple is taking a long-term view of India as both a market and manufacturing hub.
- Cook made a strong claim about Apple’s AI capabilities, stating: “believe we’ve got the best AI PC out there for running workloads” and adding that the M4 was designed specifically with AI workloads in mind. While I am sure Qualcomm, Intel and AMD will all have something to say about this claim, it is hard to ignore how the deep integration of silicon, OS and hardware can drive better results in the end. We are still at the start of what AI can do but it will be interesting to see if the higher-end Mac skews will start to eat into PC workstations share where data analysis are going to be running heavy workloads before mass market usage picks up.
- Cook described Apple’s user base as having a “barbell” distribution. One end consists of early adopters who upgrade very frequently, while the other end consists of users who hold onto devices much longer. On average our data shows a replacement cycle of 24 to 36 months but COVID threw things off as many consumers upgraded their devices off cycle in order to stay connected during the pandemic. Cook noted that the large number of units sold during COVID represents a significant upgrade opportunity for Apple.
Financial Performance:
- Revenue: $124.3B (up 4% YoY, all-time record)
- EPS: $2.40 (up 10% YoY, all-time record)
- iPhone Revenue: $69.1B (flat YoY)
- Services Revenue: $26.3B (up 14% YoY, all-time record)
- Mac Revenue: $9.0B (up 16% YoY)
- iPad Revenue: $8.1B (up 15% YoY)
- Wearables Revenue: $11.7B (down 2% YoY)
- Active Device Install Base: 2.35B (all-time high)
- Gross Margin: 46.9%
Business Highlights:
- iPhone: Apple saw a record number of upgraders during the quarter, with the iPhone 16 lineup outperforming its predecessors. Strong performance in developed markets including Canada, Western Europe, and Japan. iPhone 16 was the top-selling model in key markets including US, India, UK, France according to third party data.
- Services: Record revenue with 14% growth. Strong performance across all geographic segments. Apple TV+ continues to gain acclaim with over 2,500 nominations and 538 wins. New services launched including luggage tracking with AirTag. During the Q&A, the new CFO Kevan Parekh provided insight into their strong 75% services margin, revealing that scale businesses like payments and iCloud become more profitable as they add users.
- Mac: Growth driven by new M4-based products. Double-digit growth in both upgraders and new customers Including a strong enterprise adoption including a large Deutsche Bank deployment. A 94% customer satisfaction in US
- iPad: The segment saw growth led by iPad Air and entry-level models which is not a surprise given the iPad Pro biggest addition was the silicon while the iPad Air had a new hardware design. Good for Apple and developers, over 50% of purchases came from new customers
- Wearables: The segment saw a slight decline that the company linked to the tough you comparison which included the introduction of the Apple Watch Ultra 2 in 2024.Apple recorded strong adoption of AirPods Pro 2 with hearing health features and overall high engagement with new health features. To note that Vision Pro expanded to additional countries during the quarter.
Outlook:
Despite macroeconomic headwinds, Apple projects resilient growth for 2Q F25, forecasting low to mid-single digit year-over-year revenue expansion. The company’s high-margin services segment continues to outperform, targeting low double-digit growth and highlighting Apple’s successful pivot toward recurring revenue streams.
While a 2.5% FX headwind presents a challenge, Apple maintains robust profitability with projected gross margins of 46.5-47.5% – a testament to the company’s pricing power and operational efficiency. This margin resilience suggests Apple’s premium positioning remains strong even in a potentially softening consumer environment.
Chinese New Year sales will provide crucial insights into iPhone performance in Apple’s second-largest market.
The broader adoption of Apple Intelligence depends on more than language support. Siri’s capabilities must evolve to enable more natural voice interactions in order to see accelerated AI adoption across Apple’s ecosystem. This must occur in order for AI to be come a purchase driver. This is true across all smartphone’s AI implementations as this is the device where consumers are most comfortable using their voice as input.