Apple reported fiscal third-quarter revenue of $109.4 billion Thursday afternoon, up 16% from $94.04 billion a year ago and the largest June quarter it has ever booked. Net income was $29.8 billion, up 27%. Earnings came in at $2.02 a share against roughly $1.89 expected on revenue of just under $109 billion. Every geographic segment set a June-quarter record, including Greater China at $18.8 billion. The board declared a $0.27 dividend.
Then the stock went down. It slipped about 4% in the first minutes after the release and slid further — as much as 7.8% in after-hours trade — once management put a September-quarter forecast on the call that landed below what the street wanted. A record print, a guidance flinch, and roughly a hundred billion dollars of market value looking for a new price.
Here is the part worth sitting with. iPhone revenue was $54.25 billion, up from $44.58 billion — about 22%. Services revenue was $30.73 billion, up from $27.42 billion — about 12%. For the better part of a decade the story sold to investors ran the other way: hardware is a mature, lumpy, replacement-cycle business, and Services is the compounding annuity that earns Apple a software multiple. This quarter the phone grew at nearly twice the rate of the annuity.
The margin has a footnote
Gross margin hit 50.1%, a record, against guidance of 47.5% to 48.5% and a consensus near 47.9%. Roughly two percentage points of it came from tariff rebates — refunds available after the Supreme Court struck down the global tariff regime in February. That worked out to about 11 cents of the $2.02 in EPS, a little over 5% of the quarter’s earnings. It is real cash. It is also non-recurring, and it arrived in the same quarter Apple was raising prices across Macs and iPads to absorb the memory shortage now squeezing every hardware maker on earth.
The other footnote is supply. Cook said Apple hit the record “despite supply constraints and sequential foreign exchange headwinds,” and pointed the constraint at several Mac models where demand is running ahead of parts. Mac revenue was $10.35 billion. iPad, at $6.19 billion, was the only category that shrank. Wearables came in at $7.88 billion.
Our take: This was Tim Cook’s last earnings call as CEO — John Ternus takes the job September 1, Cook moves to executive chairman — and he handed over a company posting record revenue, record margin and a record installed base. The awkward inheritance is the mix. Apple trades at a premium built on the argument that a billion-plus active devices throw off high-margin, recurring Services revenue forever. Services just grew 12% in a quarter when the hardware it rides on grew 22%, and the tape noticed. Strip out the tariff refund and the margin is excellent rather than historic. Ternus inherits a hardware company that is executing beautifully as a hardware company — and a valuation that assumes it is something else. That gap is his first real problem, and it is not one you fix with a product cycle.
What to watch
- The Services growth rate, not the record. Every quarter is an all-time record when the installed base only goes up. The number that matters is the growth rate versus hardware. Two consecutive quarters of Services trailing iPhone would be a re-rating event.
- Whether the tariff refund repeats. Eleven cents of EPS and two points of margin came from a legal outcome, not an operating one. Next quarter’s margin guide tells you how much of the 50.1% was structural.
- Memory costs into the iPhone 18 cycle. The iPhone 17 line escaped a price rise. The shortage that took Qualcomm’s guidance and pushed Samsung’s phone division into a loss has not eased. Something has to give: the price, the spec, or the margin.
- China at $18.8 billion. A June-quarter record, and still the segment most exposed to a tariff regime that keeps changing shape.