Apple’s mixed results hide strength in India, services, and future Mac growth

Apple (AAPL) on Thursday announced better-than-expected results for its fourth quarter, but an underwhelming outlook for Q1 sent shares tumbling more than 1% in afternoon trading Friday.

While Apple’s latest results weren’t exactly bad — they beat on revenue, earnings, and iPhone sales — they didn’t engender much relief among investors who were already wary about a slowdown of iPhone sales in China. It also didn’t help that Q4 marked the fourth straight quarter of year-over-year declines in overall revenue, down 1% versus 2022.

And with Apple CFO Luca Maestri expecting the company’s iPad and Wearables, Home, and Accessories businesses to “decelerate significantly” from the September quarter, it would seem that Apple is facing serious trouble.

But there were a handful of positive signs in the company’s report and first quarter guidance that could give the tech giant a boost moving forward, including its performance in India and an expected jump in Mac sales.

India and emerging markets get a boost

Apple has been investing a good deal in India over the past several years. Not only is the company leaning on the country as a new manufacturing hub for its products, including the all-important iPhone, it’s also opened up its first physical stores in the region in Mumbai and New Delhi.

According to UBS analyst David Vogt, while India accounted for just 4% of total iPhone sell-through in the 12 months prior to September 2023, unit sales were up 31% in the country. That’s compared to declines in the US, China, and Europe.

“We had an all-time revenue record in India,” Apple CEO Tim Cook said during the company’s earnings call. “We grew very strong double digits. It's an incredibly exciting market for us and a major focus of ours. We have a low share in a large market. And so it would seem that there's a lot of headroom there.”

According to Cook, Apple is banking on more people moving into the middle class and better distribution in the country as boons for its presence there.

“I couldn't be happier with how things are going at the moment,” he added.

It’s not just India, though. Apple also launched new online stores in Chile, as well as Vietnam, where the company set new revenue records.

Mac sales to rebound

Apple’s Mac segment has been one of its biggest laggards among the company’s various businesses over the last several quarters. In Q4 of this year, in particular, revenue fell 34% year over year from $11.5 billion to $7.6 billion. But things could be turning around.

During the company’s earnings call, Maestri specifically called out the Mac business moving forward, saying that he expects year-over-year performance to “significantly accelerate in the current quarter.”

That’s because Apple just launched its new M3 line of chips, as well as its M3-powered MacBook Pros and iMac. The systems should help drive an uptick in sales, compared to the same time last year when sales were falling.

It’s important to also note that Apple’s iPad and Mac revenue in particular were stung by year-over-year comparisons that were warped by production slowdowns and a subsequent jump in sales during 2022. How long the M3 chips will buoy Mac sales, however, remains to be seen.

Services is still a standout

While Apple’s hardware sales weren’t enough to knock anyone’s socks off, the company’s Services business was a solid standout.

Revenue jumped from $19.2 billion in Q4 2022 to $22.3 billion this year. In fact, Services revenue rose each quarter last year, a stark contrast to the rest of Apple’s segments, which fell across various quarters.

“The Apple flywheel is alive and well, following a 20-year success story in which consumers buy one Apple product, fall in love, buy another product, add a service, upgrade, and repeat,” Deepwater Asset Management managing partner Gene Munster wrote in an investor note.

Services has long been seen as Apple’s best hedge against falling iPhone sales, and with the declines over the last year, Services has been a help for the company’s margins.

For 2024, Vogt says he expects Services revenue to increase to $95.4 billion, 12% higher than 2023.

While worries still abound among investors as to whether Apple’s hardware segments will bounce back after a difficult 2023, next year has a number of potential opportunities ahead, including more MacBooks running Apple’s new M3 chips, and, importantly, the launch of the Vision Pro headset. And while that won’t be a volume seller out of the gate, it could goose numbers in the future.

Daniel Howley is the tech editor at Yahoo Finance. He's been covering the tech industry since 2011. You can follow him on Twitter @DanielHowley.

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