In the third quarter of this year, when the new generation iPhone has just been launched, $Apple (AAPL.US)$ The core product iPhone's revenue has resumed positive growth, and the growth momentum has exceeded Wall Street's expectations, driving the company's total revenue to a historically high level for the same period. However, in China, the largest market for smartphones, Apple's sales failed to reverse the downward trend. Due to the impact of repaying hundreds of billions of euros in taxes in Europe, Apple's profit in the third quarter changed from growth to decline.

During the earnings call, Apple also projected that the year-end fourth quarter, which includes the heavy holiday shopping season, may see a slower year-on-year revenue growth compared to the accelerating growth in the third quarter. This guidance falls short of analysts' expectations for continued acceleration.

On Thursday, October 31st, post-market trading, Apple announced the financial data for the fourth quarter of the 2024 fiscal year ending September 28, 2024, referred to as the third quarter. The third fiscal quarter is referred to as the second quarter.

1) Main financial data

Revenue: In the third quarter, net sales were $94.93 billion, an increase of 6.1% year-on-year, compared to analysts' expectations of $94.36 billion, with a 4.9% year-on-year increase in the second quarter.

EPS: In the third quarter, GAAP diluted EPS was $0.97, a 33.6% year-on-year decrease, an 11% year-on-year increase from the second quarter; excluding one-time tax effects, non-GAAP adjusted diluted EPS was $1.64, a 12.3% year-on-year increase, compared to analyst expectations of $1.58.

Net income: Net income in the third quarter was $14.74 billion, a 35.8% year-on-year decrease, a 7.9% year-on-year increase from the second quarter.

Operating expenses: Operating expenses in the third quarter were $14.29 billion, a 6.2% year-on-year increase, compared to analyst expectations of $14.35 billion, a 6.8% year-on-year increase from the second quarter.

Gross margin: The gross margin in the third quarter was 46.2%, with analyst expectations at 46.0%, compared to 46.3% in the second quarter; the third quarter gross margin was $43.88 billion, an 8.5% year-on-year increase, compared to analyst expectations of $43.46 billion.

2) Segmented business data

Products: Net sales of phones, computers, wearable devices, and other products totaled $69.96 billion in the third quarter, a 4.1% year-on-year increase, exceeding analyst expectations of $69.15 billion, and a 1.6% year-on-year increase from the second quarter.

iPhone: Net sales of iPhones in the third quarter were $46.22 billion, a 5.5% year-on-year increase, higher than analyst expectations of $45.04 billion, but a 0.9% year-on-year decline from the second quarter.

Mac: Net sales of Mac in the third quarter were $7.74 billion, a 1.7% year-on-year increase, in line with analyst expectations, and a 2.5% year-on-year increase from the second quarter.

iPad: In the third quarter, iPad's net sales were $6.95 billion, a year-on-year increase of 7.9%, compared to analysts' expectations of $7.07 billion, a 23.7% year-on-year increase in the second quarter.

Wearables, Home, and Accessories: In the third quarter, net sales of wearables, home, and accessories were $9.042 billion, a 3% year-on-year decrease, compared to analysts' expectations of $9.17 billion, a 2.3% year-on-year decrease in the second quarter.

Services: In the third quarter, services' net sales totaled $24.97 billion, an 11.9% year-on-year increase, compared to analysts' expectations of $25.27 billion, a 14% year-on-year increase in the second quarter.

3) Segment market data

Americas: In the third quarter, Americas' net sales were $41.66 billion, a 3.9% year-on-year increase, and a 6.5% increase in the second quarter.

Europe: In the third quarter, Europe's net sales were $24.92 billion, an 11% year-on-year increase, and an 8.3% increase in the second quarter.

Greater China: In the third quarter, Greater China's net sales were $15.03 billion, a 0.3% year-on-year decrease, compared to analysts' expectations of $15.8 billion, a 6.5% year-on-year decrease in the second quarter.

Japan: In the third quarter, Japan's net sales were $5.93 billion, a 7.6% year-on-year increase, and a 5.7% increase in the second quarter.

Other Asia Pacific: In the third quarter, other Asia Pacific net sales were $7.38 billion, a year-on-year increase of 16.6%, higher than the 13% year-on-year growth in the second quarter.

After the financial report was released, Apple's stock price, which fell by 1.8%, failed to reverse the decline in post-market trading on Thursday. Instead, the decline expanded, falling by over 2% at one point after the market closed.

Excluding the one-time back payment tax impact, EPS is expected to grow by 12%. After the accelerated revenue growth in the third quarter, the growth is expected to slow down.

The financial report shows that Apple's total sales revenue in the third quarter accelerated compared to the second quarter, with a growth rate exceeding analysts' expectations of 5.4%, setting a new quarterly revenue record to date in September. Profit was mainly impacted by a one-time tax payment.

On September 10, the European court ruled that Apple, which enjoys tax benefits from the Irish government, must pay back 13 billion euros in taxes to Ireland, bringing an end to the Apple back payment tax dispute that began in 2016. Apple recorded a one-time back payment tax of $10.2 billion in the third quarter, affecting both EPS and net income for the quarter.

Without the back payment tax mentioned above, EPS could have grown by about 12% in the third quarter. However, with the back payment tax included, EPS is expected to decrease significantly by nearly 34%, and net income for the third quarter is expected to drop by almost 36%.

During the earnings conference call, Apple's Chief Financial Officer (CFO) Luca Maestri stated that the revenue in the first quarter of the company, which is the fourth quarter of this year, is expected to achieve a growth of 'low to mid-single digits'. This implies a possible slowdown in fourth-quarter revenue from 6.1% in the third quarter, falling short of analyst expectations. Analysts estimated fourth-quarter revenue at $127.7 billion, equivalent to a 7% year-on-year growth.

iPhone revenue increased by 5.5% year-on-year. Service revenue fell below expectations, iPad growth was less than expected, and wearable devices declined more than expected.

In each business segment, Apple's services revenue hit a record high for a single quarter, maintaining double-digit revenue growth in the third quarter. However, the nearly 12% growth rate slowed down compared to the 14% in the second quarter, exceeding market expectations. Analysts expect a year-on-year growth of 13.2%.

Commentators indicate that if global regulators force Apple to open the Apple Store for other distribution and payment methods, the weakness in Apple's services revenue may become more severe in the future.

In the third quarter, Apple's most important product, the iPhone, brought a surprise by not only reversing the revenue decline in the second quarter to positive growth but also outperforming analysts' expected growth rate of 2.8% with a 5.5% growth.

Among all products, the iPad saw the most rapid growth in revenue. Despite Apple's launch of the new iPad Air and iPad Pro in May, the revenue from iPads in the third quarter was lower than expected. Analysts estimated a growth of nearly 10%, while Apple recorded a growth of nearly 8%.

Mac computer sales in the third quarter met expectations, and the new Mac models released by Apple this week are expected to boost the revenue of this product line in the fourth quarter.

Among all products, wearables performed the worst, with a year-on-year sales revenue decline of 3%, accelerating from 2.3% in the second quarter. Analysts predict that the revenue decline in the third quarter will slow to 1.6%. Although Apple earlier released the $3,500 Super Mixed Reality headset Vison Pro, it has not yet been launched. Commentators note that even with the sale of AirPods 4 and AirPods Max on September 20, it will not provide significant assistance to the revenue of wearable devices in the fourth quarter.

In the third quarter, sales decline in the Greater China region slowed significantly. Analysts expect this trend to be reversed.

Looking at different market regions, Apple's sales revenue accelerated in Europe, Japan, and other Asia-Pacific regions outside China and Japan. However, performance in Apple's third-largest market, Greater China, was lackluster.

Entering 2024, Apple's quarterly sales in Greater China continue to decline, until the third quarter, the trend has not been reversed, Greater China remains the only major market where Apple sales are declining.

In the third quarter, sales revenue in Greater China only decreased by 0.3% year-on-year, significantly easing from the 6.5% decline in the second quarter, but still disappointing Wall Street. Analysts expect sales in that region for the quarter to roughly stay at the same level as a year ago, effectively stopping the downward trend.

Apple faces increasing competition in China, with both the latest iPhone 16 series and Huawei's first foldable phone Mate Xt launched on September 20, highlighting the intense competition.

The iPhone 16 is a new model that fully supports Apple's advanced artificial intelligence system, Apple Intelligence, with high hopes to boost sales. However, users of the iPhone 16 will only start using the initial Apple Intelligence features in October, and it will be available only in the USA.

During the visit to China last week, Apple CEO Cook's response did not clearly state when the new AI features would be available in China. Cook mentioned that Apple is working to complete specific regulatory processes and hopes to bring Apple Intelligence to Chinese consumers as soon as possible.

Editor/Somer