Apple Posts Blowout iPhone Sales, but Investors Focus on Higher Costs
The company, which had already forecast big December quarter sales, is now contending with rising component prices
- Apple’s iPhone revenue increased 23% to $85.3 billion, contributing to record quarterly sales of nearly $144 billion, exceeding expectations.
- Rising costs for materials, particularly memory and chips due to AI data center demand, are a concern for Apple’s future financial results.
- Premium iPhone models accounted for 52% of U.S. iPhone sales in the December quarter, up from 39% in the prior year.
Apple AAPL 0.72%increase; green up pointing triangle reported blowout iPhone sales and profits in the December quarter, but shares stayed flat after-hours because of investor concerns about rising costs.
Revenue from iPhones rose 23% to $85.3 billion compared with the prior year as customers, excited by the new iPhone 17 lineup, upgraded their devices faster than usual. That powered Apple to record quarterly sales of nearly $144 billion, results that exceeded Wall Street expectations.
Sales were particularly strong in China, where Apple’s results have been uneven in recent years.
“The demand for iPhone was simply staggering,” said Apple Chief Financial Officer Kevan Parekh, who added that Apple surpassed 2.5 billion active devices, up from 2.35 billion a year ago.
Investors who have knocked the stock off its record high are monitoring Apple’s projections for costs this year. New demand for artificial-intelligence data centers has pushed prices up sharply in recent months for materials that go into Apple devices.
The increases have been acute for memory components that make iPhones faster and for storage where people keep their ever-expanding libraries of photos and video. The chips that power devices are also growing more expensive, say analysts.
Apple shares rose about 1% in after-hours trading following the release of the financial results.
Chief Executive Tim Cook hinted at higher costs possibly affecting Apple’s future financial results. On the company’s earnings conference call, he said Apple is seeing “constraints” due to the availability of advanced chips that power Apple’s devices. He said memory prices are “increasing significantly,” prompting the company to look at a “range of options.”
AI companies are gobbling up capacity at suppliers where Apple has long been the biggest buyer. That gives the suppliers leverage to raise prices—even on their best customer.
Higher costs are expected to affect Apple later in the year as suppliers push through the price increases.
Apple is expected to eat the cost increases, according to a report from Ming-Chi Kuo, a supply-chain analyst with TF International Securities. Kuo projects that Apple won’t raise iPhone prices for next year’s iPhone 18 lineup, instead taking the hit in lower gross-profit margins.
In an offset on some of the margin pressure, the Trump administration in November halved a tariff on imports from China. Apple expected tariff costs would amount to $1.4 billion in the December quarter.
Another benefit to Apple’s profit margins: iPhone customers are upgrading to premium-priced Pro and Pro Max models at higher rates than in the past. The devices accounted for 52% of iPhone sales in the U.S. in the December quarter, estimated Consumer Intelligence Research Partners, compared with 39% for the iPhone 16 Pro and Pro Max in the same quarter last year.
One blemish for the iPhone 17 lineup has been the iPhone Air. The new model, which was a hit with some critics for its thin and light profile, hasn’t sold well. The Air costs $200 more than a base model iPhone 17, though the latter comes with a better camera and battery.
Apple hopes to entice more consumers to upgrade with Siri updates coming this year to make it more competitive with rival AI chatbots. Apple and Alphabet’s Google said this month that Apple would use Google’s Gemini to help power a more personalized Siri and other forthcoming AI features.
Apple said Thursday that it acquired Israeli startup Q.ai, which has technology that enables “whisper speech,” which could allow people to communicate quietly or non-verbally with futuristic devices such as smartglasses.
Apple projected revenue would rise 13% to 16% in the March quarter, ahead of Wall Street analysts’ consensus expectation of 10%.