Apple posts record services revenue amid hardware retraction

Apple’s services revenue hit an all-time high of $21.2 billion in its most recent quarter, driven by growth in both subscription and advertising revenue, according to its fiscal third quarter earnings.

Chief executive Tim Cook revealed on Thursday Apple now has more than 1 billion paid subscribers to its various services, which includes Apple TV+, Apple Music, Apple Arcade, Apple News and iCloud+.

Services revenue, which includes ads, subscription fees and revenue generated from app developers, grew 8% in the three months ended July 1 compared to the same period last year.

Apple executives did not provide specific breakdowns of which services witnessed the strongest growth beyond telling investors on Thursday that advertising, App Store and music revenue hit new records in June.

Apple sells search ads within its App Store and display ads within its News and Stocks apps. It also sells ads to supplement its live sports offering on Apple TV+, including within Friday Night Baseball.

It has thrown more weight into building out its ad business in the past year, including potentially developing a demand-side platform to scoop a greater share of ad spend from the ad tech supply chain.

Services has been Apple’s fastest-growing division for some time and is commanding a greater share of total revenue amid a retraction of its core hardware business — a saturated market which is exposed to supply chain constraints. Services accounted for 26% of Apple’s net sales in the quarter, up from 24% in the same period in 2022.

Revenue Apple generates from selling products including its iPhone, Mac and iPad lines decreased by 4% year-over-year to $60.6 billion.

Sales of iPhones, by far its largest product category, fell 2% to $39.7 billion. Wearables, home and accessories, its second-largest category, grew by nearly 3% to $8.3 billion. iPad sales dropped 20% to $5.8 billion, while Mac revenue fell 7% to $6.8 billion

Chief financial officer Luca Maestri blamed the decline on currency headwinds and “an uneven macroeconomic environment” during the analyst call.

He said Apple’s install base reached an all-time high across all geographic segments.

Apple said it witnessed strong iPhone sales in emerging markets such as India, Indonesia, Mexico, the Philippines, Poland, Saudi Arabia, Turkey and the UAE. 

Revenue from the Americas, its largest region, fell 6% to $35.4 billion. Europe grew by 5% to $20.2 billion. Sales in Japan fell 12% to $4.8 billion, while growing 8% to $15.8 billion in China. The rest of Asia-Pacific slumped 9% to $5.6 billion.

Apple is due to launch its new iPhone 15 in September.

Overall sales fell 1% year-over-year to $81.8 billion, though this exceeded analyst expectations.

Profit of $19.9 billion also beat estimates, up 2% year over year.

Apple’s operating expenses rose 5%, driven by an uptick in research and development costs, though sales, general and administrative expenses decreased.

Shares of Apple fell about 2% in after-hours trading. In June, Apple became the world’s first corporation to close with a market capitalization above $3 trillion.