Apple released its first-quarter earnings statement yesterday and revenue was up, just barely. But the real story isn’t the $119.6 billion in quarterly revenue, it’s the record revenue in service: $23.12 billion. And to uncover why that matters, you have to dive into the company’s consolidated statement of operations.
For Q1 2024, Apple achieved revenue of $96.5 billion in products to go along with that $23 billion in services. But that $96.5 billion in physical made-from-atoms products cost the company $58.4 billion to produce and sell: netting out $38.1 billion in gross margin. Services, on the other hand, returned its $23 billion on just $6.3 billion of cost, netting over $15 billion in gross margin.
Apple product had a gross margin of almost 40%.
Apple services had a gross margin of almost 73%.
Apple product is obscenely profitable for a hardware manufacturer. But Apple services almost double the profit margin, which is why Apple is doubling down on sales of music, storage, news, movies, TV shows, and in-app purchases. (Both numbers, of course, don’t take into account additional company expenses: operations, research and development, and so on.)
iPhone is still the company’s massive single cash cow, of course, at almost 60% of total sales, dwarfing all other categories: Mac, iPad, wearables, and yes, services:
- iPhone: $69.7 billion
- Mac: $7.8 billion
- iPad: $7 billion
- Wearables, home, accessories: $12 billion
- Services: $23.1 billion
And Apple Vision Pro will become a part of that mix at some point, most likely, although it will likely initially be lumped into wearables to conceal Apple’s success or failure to some extent.
Apple CEO Tim Cook referenced all three in his earnings statement:
“Today Apple is reporting revenue growth for the December quarter fueled by iPhone sales, and an all-time revenue record in Services,” he said. “We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments. And as customers begin to experience the incredible Apple Vision Pro tomorrow, we are committed as ever to the pursuit of groundbreaking innovation — in line with our values and on behalf of our customers.”
Apple’s services revenue does have some risk.
The company’s recent response to Europe’s Digital Markets Act, which mandates open competition in app stores and in-app payments among other things, is designed to protect its 30% cut of in-app purchases and will likely face multiple legal and business challenges.
But from personal experience with the Apple ecosystem, it’s hard to beat the seamless connection of hardware, software, and content that you can get from iPhone, Apple TV, Mac, and its products for music, news, movies, streaming services, and more.
Also, Apple faces challenges in China, the one region where its revenue dropped this quarter.
Apple lost almost $3 billion in sales in an undercurrent of global protectionism and increased geopolitical tension between China and the U.S. Apple is still strong in China—hitting first place for smartphone sales for the first time ever—but the overall market was down, and increasing tensions don’t bode well for business prospects of American companies in China.
