Apple Reports Record Q4 2023 Profits Despite 1% Revenue Drop
Reporting on its results for its fourth fiscal quarter of 2023, Apple has announced record profits of $23 billion ($1.46 per diluted share) on revenues of $89.5 billion, which were down 1% compared to the year-ago quarter (see “Apple Weathers Stormy Seas in Q4 2022,” 27 October 2022). Despite the overall revenue failing to keep pace, Apple increased profits by a whopping 13% compared to last year’s September quarter.
The revenue stars of the quarter were the iPhone, which hit a record for the September quarter, and Services, which posted an all-time record. Those two accounted for nearly 75% of the quarter’s revenue. The remaining product categories were all down, particularly the Mac, with the iPad dropping for the second straight year. Wearables fell slightly but still outpaced the Mac as a percentage of Apple’s overall revenues.
iPhone
As is typically the case for Apple’s September quarter, new releases helped drive the iPhone revenue picture, leading to a 3% revenue boost over the same quarter last year. Although Apple’s iPhone revenues in the important Greater China region were slightly down, Apple still had the four top-earning phones in the region—foreign exchange rates accounted for the overall drop in iPhone revenues there.
Mac
Mac sales revenue fell by a whopping 34% from last year’s fourth quarter, but that quarter was an anomaly because its Mac revenue was disproportionately high as Apple caught up with demand from previous supply disruptions due to factory shutdowns. Also, the M2 13-inch MacBook Air launched in 2022’s fourth quarter, whereas the M2 15-inch MacBook Air launched in 2023’s third quarter (see “Apple Q3 2023 Earnings Down 1% on Exchange Rates,” 4 August 2023). Apple expects Mac sales to rebound in the December quarter due to the recent release of the M3 MacBook Pro and iMac models. That seems possible for the 24-inch iMac, which had been languishing with an M1 chip since May 2021, but less likely for the 14-inch and 16-inch MacBook Pro models, which Apple upgraded to the M2 Pro and M2 Max in January 2023.
iPad
Apple didn’t provide much detail as to why its iPad revenue was down by 10%, but it seems evident that it’s related to the lack of new models. The tenth-generation iPad and most recent iPad Pro models were released in October 2022, the fifth-generation iPad Air in March 2022, and the sixth-generation iPad mini in September 2021. Unlike the Mac, Apple said that iPad revenues would suffer in the December quarter because of the comparison against last year’s release of the tenth-generation iPad and iPad Pro models. That also suggests we won’t see any iPad updates before the end of the year.
Wearables
The Wearables category, which includes the AirPods, Apple Watch, Apple TV, and similar items, saw a 3% revenue decline in the quarter. Much of that is due to unexciting product releases that came late in the quarter (see “2023 Apple Watch Models Add Double Tap Gesture,” 13 September 2023, and “Apple Updates AirPods Pro with USB-C Case and Improved Dust Resistance,” 15 September 2023). Neither the Apple Watch Series 9 nor the Apple Watch Ultra 2 offered significant changes, and while they’re fine updates, neither is likely to encourage Apple Watch owners to replace an older model that works acceptably. With the Apple Watch and AirPods product lines stable and mature, Apple seems focused on developing its next big thing: the Vision Pro headset, slated for release sometime in 2024. Apple expects another comparative drop for Wearables in the December quarter because last year’s quarter saw the release of the Apple Watch SE, Apple Watch Ultra, and second-generation AirPods Pro.
Services
The biggest revenue gainer for the quarter was once again Services, which rose by 16% compared to the year-ago quarter. Part of this is due to Apple continually increasing the size of its installed base—the more Apple customers, the more Services-related revenue Apple is likely to pull in. Though an analyst asked which of Apple’s services were responsible for the bulk of the revenue, Apple balked at sharing that detail. The company did say that the App Store, advertising, AppleCare, iCloud, payment services, and video hit all-time records, and Apple Music achieved a quarterly revenue record. With prices rising for several services (see “Prices Increase for Apple TV+, Apple Arcade, Apple News+, and Apple One,” 25 October 2023), continued growth for Services revenue seems guaranteed.
Regional Results
Apple stayed the course across all the regions where it does business during the September quarter. Although revenues in the Americas were up and hit an all-time record, it was by just under 1%, while other regional results were slightly down. European revenues declined by 1.5%, revenues in Japan were off by 3%, and Greater China saw a 2.5% revenue drop. Apple generally attributed the lack of growth to foreign exchange headwinds. Interestingly, although the Asia Pacific region results were almost flat year-over-year, the India portion of that region, where Apple has a low market share, saw double-digit growth, a sign that India may provide a more significant Apple revenue stream in the future.
While Apple’s Q4 2023 revenue numbers didn’t compare favorably to last year’s fourth quarter, it’s hard to criticize when unfavorable exchange rates account for much of the revenue drop. (Though, as I’ve wondered in the past, were some of Apple’s more positive quarters buoyed by favorable exchange rates?) Regardless, Apple still managed to increase profits by 13% even as revenues fell by 1%, suggesting solid business operations.
Thank you, @mcohen for a very nice summary.
This is an impressive image
iPhone still dominates. And the Apple is doomed faction will point to this and say that once iPhone stops being cool, Apple is in serious trouble.
Not too worried about any of that myself, but the Mac raking in less than wearables to me is a bit alarming. There’s of course reasons for this specific to this quarter, but IMHO the whole Mac lineup hasn’t looked this good in a long time and yet, in terms of revenue it’s facing serious headwinds. There are those that say it’s because Apple is greedy and Macs are overpriced, especially the egregious mem/storage upcharge, but I don’t see how lowering that income would magically crank up Mac revenue. How many more Macs would Apple sell if that mem upgrade were $300 instead of $400?
One figure I do really wonder about. “Services” is often waved around as this hot new thing that sells more than Mac + iPad combined yada yada. But as we learned in the ongoing Google antitrust trial, Google pays Apple somewhere between $8-20B per year for making Google the default search. If you factor that out of the $22.3B services revenue it goes into, not a whole lot is left for claims such as “Ted Lasso is so great and making Apple so much money” or “Apple Music stands up to Spotify”. In fact, without that chunk of Google bribe (let’s assume it’s the $14B mean), Services would be relegated to about $8B. In other words 9% of revenue combined for Apple Music, Apple TV+, Arcade, Fitness/Sports yada yada and all that iCloud storage people are supposedly buying. But 9% is less than average Mac, more than average iPad. Not chump change for sure, and yet, while money people love to schmooze about services, it’s no better really than Mac or iPad. Both of which are often touted as “lackluster” by the same money people. Pfft.
Simon,
The revenues discussed in Michael’s article are quarterly revenues, so if Google pays $14B annually, the average quarterly number is $3.5B. Non-Google services revenue would be $18.8B, which I think damages the rest of your analysis.
Ha! You’re absolutely right. I got confused by labels mentioning years, but it’s still quarterly data. You are right.
And I stand corrected. Thank you.
Also, I’m not sure why we’re criticizing Apple’s strategy for taking advantage of their screen real estate being worth a $14 billion rental charge for one small part of it.
Man, does anyone still go to those meetings?
I’m not sure that’s really true. For 2023, Apple posted $29.3 billion in Mac sales, ($7.7, $6.8, $7.2, and $7.6 billion). Sure, that’s a little less than 10% of Apple’s revenues for the year, but it’s still freakin’ $29.3 BILLION. Plus, those numbers are relatively stable, showing a constant demand rather than something spikes with new models or cyclical trends. And Apple pretty much always says that half of all Mac buyers are new to the platform. So from that perspective, the Mac seems like an extremely solid business, if not one that’s ever going to break out with stunning profits again.
PC sales have been declining across the board:
Jason Snell has done a year-end article looking at how 2023 as a whole stacked up for Apple.