The iPhone Won’t Save Apple
Apple's iPhone just delivered its strongest quarter in years, yet a perfect storm of shrinking margins, sky-high prices, and chip shortages threatens to turn that momentum into a liability.
The iPhone posted more impressive results in Apple’s (NASDAQ: AAPL | AAPL Price Prediction) most recently reported quarter. Its revenue rose almost 18% to $57.6 billion. That was faster than Apple’s total revenue for the period, which rose 12% to $114.5 billion.
The iPhone has bailed out Apple time and time again. Sales of the iPad, Mac, and “wearables” have struggled at times. Apple’s “services” operation was supposed to replace the iPhone as Apple’s growth engine. It is Apple’s second-largest business, with revenue at $31.6 billion, but that was up only 10% year over year.
The iPhone faces two problems. The future of one is too early to tell. Will the iPhone 18, which comes in several flavors led by the dual-screen Duo, sell as well as earlier generations? Apple’s gross margins are about to fall from 47%. As Apple’s largest revenue contributor, the iPhone will see the largest dollar-figure margin loss.
Apple warned that gross margins would drop to about 45%. Some experts were less sanguine; Bloomberg Intelligence analysts Anurag Rana and Josh Christensen warned that this was a major problem. This was echoed across Wall St. and the press.
Oddly, what is good for Nvidia, its peers, and rivals is that the more memory chips that companies lose, the less there is for Apple. And, because of manufacturing capacity, that problem will get worse. SK Hynix says that could last until 2030. That means Apple’s gross-margin challenge may be hard to overcome.
The iPhone 18 could continue to drive Apple’s top line, although it faces challenges as well. It is expensive. The Duo’s price starts at $1,999. And reports already suggest that the AI/Gemini-powered version of Siri and Apple Intelligence just aren’t very good.
The iPhone could shoulder Apple’s slowing revenue, but it costs too much to make.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
