Apple’s September quarter revenue for its 2022 financial year rose 8.1% YoY to a record high of $90.1 billion, easily beating Wall Street estimates. The results showcased the company’s resilience amid the difficult macro environment and foreign-currency headwinds.

The company posted strong top-line growth across all product segments except for the iPad. Currency fluctuations remained a key pain point for Apple and will remain so going into the holiday season. Meanwhile, the silicon-related supply constraints during the quarter did not significantly hurt the company.

Apple Wholesale Revenues, Operating Margin, Gross Margin

Source: Counterpoint Research

iPhone 14 shipments constrained by supply, at least for now

• Apple’s revenue from iPhones grew 9.7% YoY despite foreign exchange headwinds on top of an already strong year-ago quarter.
• Apple registered a record-high installed base number for active devices driven by a record number of upgraders as well as ‘double-digit’ growth of switchers to iPhones, indicating continued migration from Android to iOS.
• Another notable milestone was the record growth in emerging markets, namely India, Indonesia, Thailand, Vietnam and Mexico, despite currency headwinds in the respective geographies, indicating strong headroom for growth in these regions.
• The higher mix of Pro models in the iPhone 14 line-up and higher memory variants is further driving up iPhone ASPs according to initial channel checks.
• The initial few weeks following the iPhone 14 launch were constrained by limited supplies. We will only see the ideal sales mix of ‘Pro’ and ‘non-Pro’ models and the effects of macroeconomic headwinds once the initial demand settles.

Record growth for Mac driven by channel fill, fulfillment of order backlogs and new launches

• Revenue from the sale of Macs jumped 25.4% YoY to an all-time high of $11.5 billion, despite foreign exchange headwinds.
• The supply of Mac devices improved and Apple was able to fulfill backorders from the previous quarter and fill channels ahead of the holiday season. The launch of the new M2-powered MacBook Air and MacBook Pro also helped the company.
• Mac and iPad categories were hit by supply constraints in the previous quarter, but Apple seems to have navigated the issue ahead of the holiday season.
• The installed base for Mac devices also reached an all-time high, attracting both upgraders as well as first-time Mac users.
• More than half of the Mac purchases came from new users. This is crucial for Apple as it continues to attract the creator community and expand its footprint to a wider audience.

iPad revenue down, mostly due to launch timing

• Revenue from the sale of iPads declined 13.1% YoY to $7.2 billion, mostly due to the timing of the product launches.
• The installed base for iPads also touched a new all-time high, with over half of all iPad purchases coming from new users.
• The iPad Pro 6^th Gen model was launched in October featuring Apple’s latest in-house M2 silicon chip, ProRes features, updated SmartHDR and faster connectivity (enabled with Wi-Fi 6E for the first time in an iPad model) for heavy users looking for top specifications.

Apple Watch remained supply-constrained

• The wearables category also posted strong growth, driven by demand for the new Apple Watch SE, Watch 8 and Watch Ultra, which remained supply-constrained during the quarter.
• There was growth in this category despite foreign exchange headwinds and loss of business in Russia. Notably, two-thirds of Apple Watch purchases came from new users.
• The new AirPods continued to contribute to the segment revenue but were equally affected by foreign exchange hurdles.

Services segment poised for growth but risks loom

• With the installed base of iPhones and other iOS devices at all-time highs, the services business is set for an upward trajectory and possibly a supercycle. However, the segment remains more exposed to risks than others.
• Despite being significantly affected by foreign exchange headwinds, the segment’s quarterly revenue rose 5% YoY to $19.2 billion. It accounted for 900 million paid subscriptions, which increased by 155 million in the last 12 months.
• Apple’s iCloud and payments services posted record-high quarterly revenues while its digital advertising and gaming services experienced softness due to the difficult macro environment. This is likely to continue in the December quarter.
• Apple increased the pricing of Apple Music primarily due to the higher cost of content licensing. But in the case of Apple TV+, Apple increased prices as it continues to expand its content library.

Enterprise segment continues to win new businesses

• Apple witnessed strong growth in the B2B segment, which targets large enterprises.
• Apple says Ford is using iPad and iPhone’s advanced camera system for quality inspection of the new F-150 electric trucks.
• Apple products are also helping companies such as Cisco attract new talent as well as retain employees.
• The high residual value of Apple devices remains a key selling point for the company to attract new customers. Apple’s trade-in programs further enable the brand to reduce the refresh cycle.

Overall, Apple’s strong grip over its user base continues to act as a growth engine, while its ‘walled garden’ approach builds further stickiness and brings in new users across its ecosystem. The current macro headwinds remain a temporary hurdle in the face of a longer-term growth supercycle as the company’s installed base continues to set new records.