Apple Earnings Report Summary: After-hours rebound of 3%, growth expectations driven by AI remain strong! What is the impact of DeepSeek shock?

For the October to December 2024 period,although iPhone revenue (with weak performance in China) fell below market expectations, the revenue from the services sector, as well as Mac and iPad, exceeded market estimates. Adjusted EPS also slightly surpassed market expectations.For the January to March 2025 period,the revenue guidance was almost in line with market expectations, providing reassurance to investors.
During the Earnings Call, CEO TIM Cook indicated that "the iPhone 16 is performing well in Regions where Apple Intelligence is available.This also supported the stock price. The struggles in China are believed to be partly due to the inability to offer AI features.
DeepSeek ShockAt this point, there are still many unclear aspects, but if it leads to a decrease in AI costs in the future, it could be a positive factor for Apple, which has been slow in investing.

Earnings Call Highlights
●Results for the first quarter of fiscal year 2025 (October-December 2024 period).
iPhone sales are soft and China is weak, but services and other areas are strong, leading to overall robust performance.
●Total revenue: Year-on-year4% increaseto reach 124.3 billion dollarsrecording the highestThe market forecast was 124.2 billion dollars.
◇iPhone revenue: Year-on-yeardecreased by 1%to 69.138 billion dollars, while the market estimate was 71.13 billion dollars.
◇Service revenue: Year-on-yearincreased by 16%to 26.34 billion dollars.recording the highestThe market estimate is 26.098 billion dollars.
◇Wearable and home appliance revenue.: Year-on-yearA decrease of 2%.The revenue is 11.747 billion dollars, and the market estimate is 11.939 billion dollars.
◇Mac revenue.: Year-on-yearincreased by 16%of 8.987 billion dollars, market estimate 7.962 billion dollars
◇iPad revenue: Year-on-year15% increaseof 8.088 billion dollars, market estimate is 7.354 billion dollars

●revenue in the Greater China Region: Year-on-year11% decreaseof 18.513 billion dollars, market expectations are 21.567 billion dollars
●Adjusted EPS (Earnings Per Share) per share.: Year-on-year10% increaseof 2.40 dollarsrecording the highestThe market estimate is $2.35.
●Shareholder returnsA shareholder return of over $30 billion is implemented through Dividends and Share Buyback.
●DividendsMaintaining a cash Dividends of $0.25 per share, consistent with market expectations.

●Fiscal Year 2025 Q2 (January-March) Guidance
Revenue estimates are almost in line with market expectations, providing investors with a sense of reassurance.
The company indicated that the revenue outlook for the January-March period would likely see growth in the low to mid-single digits year-on-year. This aligns closely with the market's estimate of a 5% increase.

Key comments from CEO TIM Cook during the Earnings Call.
●AI Function
Available regions for use are gradually expanding.
In October 2024, the first Apple Intelligence features (in English) will be released in the USA for iPhone, iPad, and Mac, with additional features added in December. Recently, Apple Intelligence became available in Australia, Canada, New Zealand, South Africa, and the UK. By April 2025, it will be available in even more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, Simplified Chinese (*), and English localized for Singapore and India. (* It is unclear when it will be available in the Chinese market.)

●New iPhone 16
Strong sales in regions where AI function is available, prompting upgrades of the AI function.
In markets where Apple Intelligence has been rolled out, the year-on-year performance of the iPhone 16 family has been found to be better than in markets where Apple Intelligence is unavailable. (When asked if Apple Intelligence facilitated upgrades) Looking at the iPhone, it has set records for upgrades. Never before have so many people upgraded. It also recorded the highest ever installation base. Therefore, it can be concluded that there is sufficient reason to upgrade (indicating that AI features promoted the upgrades).

●AI PC
"Very satisfied."
Sales of Macs increased by 16%, and iPads saw a 15% increase. The introduction of new products during the quarter and the continued success of the MacBook Air drove this growth. As you know, we launched M4 (*) based MacBook Pro, iMac, and Mac Mini during this quarter. We believe we have the best AI PC to run workloads. The silicon for Macs has been designed over the past few years specifically for these workloads. Therefore, while we do not want to predict the future at the category level, we are very satisfied with both Macs and iPads this quarter.

●Regarding the Chinese market.
In the previous quarter, the impact of channel inventory, intensified competition, and AI functions not yet implemented; expectations for financial stimulus in the current quarter.
More than half of the sales decline we experienced (in the Greater China region) was due to changes in channel inventory. And of course, Apple Intelligence is not deployed in China. As I mentioned earlier, the markets where we deployed saw better results than the markets where we did not deploy. Of course, China is the most competitive market in the world.

In terms of the macro situation, although fiscal stimulus measures or subsidies were announced in January very recently, they did not impact the October-December quarter. While there were some subsidies at the provincial government level in the October-December quarter, I believe the national program was announced on January 20th. This program covers a category that includes products ranging from smartphones to tablets, PCs, and smartwatches up to a certain highest price range. Therefore, I expect fiscal stimulus to be implemented. I look forward to discussing what it will entail in the next conference call.

●About DeepSeek
Innovation is a good thing; Apple will continue to control expenses and utilize a public model in the future.
In general, I believe that innovations aimed at increasing efficiency are good. This is reflected in this model. The tight integration of silicon and Software will continue to be very helpful. As you know, we work both on devices and in private clouds, mimicking what occurs on devices from an architectural standpoint. Additionally, from an investment perspective, we always take a very cautious and calculated approach to spending. While we continue to constrain spending and leverage hybrid models, we believe this will remain effective.

●Regarding the impact of tariffs.
We are monitoring the situation and have nothing more to add.

Overall,
Apple is falling behind Samsung Electronics and Google inthe implementation of AI features,Finally, in September 2024, Apple started offering Apple Intelligence. There were expectations for a resumption of the growth cycle with AI, however, Apple's AI capabilities were not as powerful as expected, causing a setback especially because they were not yet available in the Chinese market.Softness in the Chinese marketIn addition to intensified competition, the lack of AI functionality is also considered a factor. However, these factors seem to have already given investors a negative impression.priced into the market.This Earnings Reports content rather gave investors the impression that, the performance is surprisingly resilient.starting to expect the growth cycle driven by AI, CEO TIM Cook hasAI features have facilitated upgrades, which suggests that hope remains alive.