According to the analyst, Apple (AAPL) reported better-than-expected results for the December quarter, with revenue reaching $119.6 billion and earnings per share at $2.18, compared to the street's estimates of $118 billion and $2.10, respectively. Overall sales showed a 2% year-over-year increase (adjusted for an extra week in the previous year, the increase was +4%), driven by strong performances in iPhones (+6%) and services (+11%), partially offset by declines in iPad (-25%) and wearables (-10%). However, there are concerns regarding the softer guidance for the March quarter, which suggests a sales decline of approximately 5% year-over-year, with earnings per share projected to be around $1.50 (compared to the street's estimate of $1.58).
Looking ahead to the March quarter, iPhone revenues are expected to remain flat year-over-year (adjusted for a $5 billion benefit from the previous year, in the range of approximately $46 billion). Services are anticipated to see double-digit growth, potentially exceeding expectations due to implemented price increases. On the other hand, other hardware products like iPad and Wearables are forecasted to decline high single digits year-over-year in March. China revenues experienced a 12% year-over-year decrease, primarily driven by weaker consumer spending on wearables and iPads, although iPhone sales in China saw a mid single-digit decline in constant currency.
Despite the challenges, Apple continues to witness improvements in gross margins, with expected gross margins for the March quarter in the range of 46-47% (higher than the street's estimate of 45.5%), mitigating the impact of revenue miss on the bottom line. Additionally, positive developments include the promising reception of Vision Pro with 600 new apps at launch and strong interest from enterprises. Apple also anticipates launching and discussing its Gen AI products later this year, while the iOS install base grew impressively by 10%.
In summary, while there may be disappointment regarding the March quarter guidance, Evercore ISI believes that iPhone sales are mostly stable, with several positive factors favoring Apple's prospects, including upcoming Gen AI product launches, Vision Pro adoption, and sustained free cash flow generation coupled with capital allocation strategies.
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