iPhones have gotten much better over the years. For Apple, that isn’t always helpful.
Apple’s fiscal first-quarter report Thursday afternoon showed iPhone revenue falling nearly 1% from a year earlier to $69.1 billion for the period. That was below even the anemic 1.4% growth Wall Street had anticipated—and a notable slowdown from the 6% revenue growth Apple’s largest product line showed in the same period last year.
Given that Apple launches its new smartphones in late September, the December-ending quarter typically accounts for a little over a third of the company’s annual iPhone sales. That makes Thursday’s results the latest confirmation that the iPhone 16 family—the first to include Apple’s artificial-intelligence tools—isn’t resonating much with consumers. Or at least, isn’t exciting enough to spark one of the company’s vaunted “supercycles” that are becoming fewer and further between these days. The last time iPhone revenue grew by double digits annually was the fiscal year that ended in September 2021, led by the iPhone 12 family.
A large base of users on a three-year-old phone once looked like fertile ground for a strong upgrade cycle. But with more iPhone models now fetching price tags well over $1,000, Apple’s customers have a powerful incentive to get as much life out of their devices as possible. Wireless analyst Craig Moffett of MoffettNathanson says iPhone buyers in the U.S. now hold on to their devices for more than four years on average, compared with two years a decade ago.
Apple Chief Executive Tim Cook said on the company’s earnings call Thursday that the iPhone 16 is actually outperforming the prior year’s new iPhone model at the same point in time, though he didn’t give specific sales data. Weakness in China, where Apple’s AI service isn’t available yet, didn’t help. Apple’s revenue from China slid 11% year over year.
Wall Street, for its part, expects just 2% growth in iPhone revenue for the current fiscal year. Many instead are pinning hopes on the next iPhone family, which will reportedly have a thinner design and perhaps more compelling AI features. Analysts currently expect iPhone revenue to grow 8% in Apple’s next fiscal year, which ends in September 2026, according to consensus estimates from FactSet.
For that, investors are paying a rather tidy premium now. Apple’s shares have jumped 6% over the past week, as many investors have concluded that the AI cost-efficiency claims by Chinese AI startup DeepSeek validate Apple’s own artificial-intelligence strategy of striking partnerships and avoiding the capital-equipment spending race. That has put Apple to a little over 31 times projected earnings for the next four quarters, which is 16% above the stock’s three-year average and a premium to even Nvidia after the AI titan’s brutal selloff on the same DeepSeek news.
Apple shares gained a further 2% in after-hours trading Thursday, as the company’s outlook for the March quarter was roughly in line with Wall Street’s forecasts once accounting for the stronger dollar. But even if Apple benefits from advancements in AI efficiency, its hardware-centric business model means the main way it can get artificial intelligence in front of most of its users is to persuade them to spring for new devices that can handle it. A thinner and more feature-heavy iPhone 17 might help make that sale, but buyers of Apple’s pricey stock now have a long time to wait to find that out.
Write to Jacky Wong at [email protected]
