Apple’s blockbuster iPhone sales power record $144bn quarter

Apple reported a blockbuster quarter for iPhone sales as holiday purchases and a rebound in China helped it beat its already ambitious expectations with a record $144bn in revenue.

A strong launch for the iPhone 17 pushed smartphone revenue up 23 per cent year on year in the three months to the end of December, Apple said on Thursday — driving overall revenue growth of 16 per cent, far ahead of its guidance of 10-12 per cent.

The smartphone group said sales in the crucial Chinese market jumped 38 per cent year on year, while it reported $42bn in net income for the quarter, well ahead of expectations.

Chief executive Tim Cook hailed “a remarkable, record-breaking quarter” driven by “unprecedented [iPhone] demand, with all-time records across every geographic segment”.

However, the blowout earnings received a muted reaction as investors fretted about the durability of the sales boom, rising costs and Apple’s AI strategy, which has been plagued by false starts and rivals poaching top talent.

Apple shares rose less than 1 per cent in after-market trading. The stock was up 22 per cent over the past six months ahead of Thursday’s earnings report, beating the Nasdaq Composite, thanks to strong hardware sales and a less severe hit from US tariffs than initially feared.

Chief financial officer Kevan Parekh said the launch of the iPhone 17 had led to a wave of consumers in China upgrading their Apple model or switching from rivals.

“It really comes down to the reception of the product line-up . . . the iPhone 17 family has seen a huge amount of enthusiasm and that’s really the driver of performance.”

The return to growth in China follows two years of rocky sales, as Apple faced stiff competition from local rivals such as Huawei as well as a government pushback against its devices.

Apple forecast overall revenue growth in the current quarter of 13 to 16 per cent year on year, above Wall Street expectations of 10 per cent.

Still, analysts said it had failed to address longer-term concerns about its AI strategy and looming cost increases from a global shortage of memory chips.

“I think that investors still have this nagging question of: Is this company going to be successful in AI? It’s still a ‘show me the money’ question,” said Gene Munster at Deepwater Asset Management. “They are so gun-shy . . . given the debacle of last year.”

Melissa Otto, head of Visible Alpha Research at S&P Global, said investors were wary of memory chip costs heading into the second half of the year and whether the recovery in China would last.

“The stock right now trades, on this year’s numbers, at around 31 times the consensus. So it’s not a cheap stock,” she added.

Cook warned memory chip costs would probably rise in the current quarter but declined to comment on how it would play out beyond March.

Surging demand for the small number of global manufacturers who can supply the high-end memory chips needed in AI data centres has led to a shortage in the more traditional types of memory used in consumer devices such as Apple’s.

Memory chipmaker SanDisk on Thursday said demand for its products “meaningfully exceeded supply”, leading to price rises. It forecast quarterly revenue of as much as $4.8bn, nearly double Wall Street estimates.

Analysts at Morgan Stanley and Jefferies have predicted that Apple will increase prices for the iPhone 18 later this year by about $100. Cook said he would not “speculate” on price rises.

Apple partly allayed cost concerns by forecasting its gross margins would stay stable or grow in the first three months of 2026, from a better than expected 48.2 per cent last quarter.

The Cupertino, California-based tech company has stayed on the sidelines as its Big Tech rivals pour hundreds of billions of dollars into AI models, chips and data centres.

Last quarter, executives pledged to spend more on AI research after some high-profile departures from its AI team. Apple’s research and development spending for the quarter was $10.8bn, up 31 per cent year on year.

Apple announced a deal this month to use Google’s Gemini models to power features for the iPhone and improve the Siri voice assistant, in addition to its existing relationship with OpenAI.

Otto said the arrangement faces some scepticism around the as-yet undisclosed financial terms. “We really don’t have any clarity on where the rubber hits the road in the numbers, so that’s also, I think, something that investors may not have been excited about,” she said.

Earlier on Thursday, Apple announced it had acquired secretive Israeli start-up Q.AI — whose technology analyses facial expression to understand “silent speech” — as part of an effort to compete in the emerging market for wearable AI-powered devices.

The deal valued the start-up at close to $2bn, the FT reported, making it Apple’s second-biggest takeover.

Services revenue hit a record $30bn as the high-margin division that includes the App Store, Apple Pay and iCloud continued a recent run of strong growth.