Apple earnings recap: Tim Cook weighs in on DeepSeek as China and iPhone sales disappoint

"We are monitoring the situation and don't have anything more to add than that," Cook says.

Under Trump's last administration, Apple was able to avoid being included in Trump's China tariff.

"I do believe it will go mainstream," Cook says. "I'm getting feedback from people using different features today. Keep in mind that on the iPhone side of our business, you either have to have an iPhone 15 Pro or iPhone 16 to use Apple Intelligence. As that base grows, the usage will continue to grow."

"I know from my own personal experience, once you start using the features, you can't imagine not using them anymore."

Cook says he gets hundreds of emails a day and the AI summary feature is "so important." In April, Apple will roll out Apple Intelligence to a whole series of new languages, Cook says.

"The base grows further," he says.

"There are many compelling reasons to upgrade," Cook says.

Apple has heavily marketed the iPhone 16's AI features as it looks to convince people to upgrade from older phones. However, some of the features Apple announced last year have yet to be released.

Cook reiterates that iPhone sales are up in regions where Apple Intelligence is available.

Channel inventory in China was reduced by the end of the quarter, which Cook says fueled half of the 11% drop in the important market.

"Part of the reason for that is that our sales were a bit higher than we forecasted them to be toward the end of the quarter, and so we ended a little leaner than we had expected to," Cook says.

"It's the most competitive market in the world," Cook says.

Cook says the iPhone has more room to innovate, and generally hypes up products Apple has in the pipeline.

iPads had a "good amount" of new customers in fiscal Q1 driven, in part, by iPad Air, Cook adds.

Cook says that, in general, "innovation that drives efficiency is a good thing," referencing DeepSeek.

"From a CapEx point of view, we've always taken a very prudent, deliberative approach to our expenditure, and we continue to leverage a hybrid model, which I think continues to serve as well," Cook said, referencing Apple's AI strategy.

Apple's stock is now trading up over 3% in after hours.

Apple doesn't break out full guidance like some other companies do, but it gives various data points.

Apple's CFO said the company expects foreign currency exchange to be a "headwind," which is expected to have a negative impact of 2.5 percentage points on quarterly revenue. Parekh says services is expected to grow by low double digits.

Overall revenue growth is expected to be comparable to December growth, with low- to mid-single-digit growth.

Apple's new CFO, Kevan Parekh, started in the role on January 1. He's been with Apple since 2013.

Cook highlights Apple's growing services revenue, including AppleTV+. Cook throws in a "Severance" shoutout, which he helped promote with a video spot.

Apple TV plus productions have earned more than 2,500 nominations and 538 wins, Cook says.

Cook highlights reaching 2.35 billion installed devices in December. He shouts out Apple Intelligence features that rolled out in fiscal Q1.

He teases a "more capable Siri later."

"Our thoughts are with everyone who's beginning the road to recovery," Cook says.

"LA is home to many of our team members," he adds.

Cook says Apple is supporting those affected by the fires in the Los Angeles area.

Cook is joined by the new CFO, Kevan Parekh, for the fiscal Q1 call.

It's Parekh's first call as CFO since replacing Luca Maestri earlier this month. Apple announced Maestri's transition out of the role in August.

Jacob Bourne, analyst at EMARKETER, a sister company to Business Insider, said that "Apple's ability to deliver a solid quarter, beating expectations despite macro headwinds, validates its multi-faceted strategy."

"While the company's cautious approach to AI rollout has drawn criticism, robust services growth and ecosystem expansion are providing crucial momentum to help ease its continued iPhone struggles in China," Bourne said.

"However, Apple needs to accelerate its Apple Intelligence deployment and be a bit more aggressive in emerging areas like smart glasses development to maintain an innovative edge. The results show Apple can still execute, but the next few quarters will test whether it can balance its cautious approach with the market's hunger for AI innovation."

Revenue in Greater China declined 11.1% year-over-year in Apple's fiscal Q1. Factors in the sales drop include "channel inventory" changes and Apple Intelligence's unavailability in the region, Cook told CNBC in an interview.

"During the December quarter, we saw that in markets where we had rolled out Apple intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those markets where we had not rolled out Apple intelligence," Cook said.

1st quarter

• Revenue: $124.30 billion, +4% y/y, estimate $124.1 billion

• Products revenue: $97.96 billion, +1.6% y/y, estimate $98.02 billion

  • IPhone revenue: $69.14 billion, -0.8% y/y, estimate $71.04 billion
  • Mac revenue: $8.99 billion, +16% y/y, estimate $7.94 billion
  • IPad revenue: $8.09 billion, +15% y/y, estimate $7.35 billion
  • Wearables, home and accessories: $11.75 billion, -1.7% y/y, estimate $11.95 billion
• Service revenue: $26.34 billion, +14% y/y, estimate $26.1 billion
• Greater China revenue: $18.51 billion, -11% y/y, estimate $21.57 billion
• EPS: $2.40 vs. $2.18 y/y, estimate $2.35
• Total operating expenses: $15.44 billion, +6.6% y/y, estimate $15.34 billion
• Gross margin: $58.28 billion, +6.2% y/y, estimate $57.98 billion
• Cash and cash equivalents: $30.30 billion, -26% y/y, estimate $36.45 billion
• Cost of sales: $66.03 billion, +2% y/y, estimate $65.98 billion
• Total current assets: $133.24 billion, -7.3% y/y, estimate $165.17 billion
• Total current liabilities: $144.37 billion, +7.8% y/y, estimate $167.07 billion

Source: Bloomberg data

Analysts at Goldman Sachs wrote that while they expect iPhone shipments to decline by about 4% relative to the year-ago quarter, higher iPhone prices should make up for the shortfall, resulting in 1% year-over-year revenue growth for Apple's flagship product.

The bank is already focused on Apple's upcoming iPhones, which they expect to unlock growth as new AI features are rolled out.

"We're encouraged by the potential for accelerating iPhone growth in F2026 driven by new product innovation for iPhone 17/18 and the continued rollout of Apple Intelligence to new markets with a more robust feature set," Goldman Sachs said in a recent note.

A bright spot in the quarter should be Apple's services business, with app store spending growth to reach an estimated 15% in the quarter with "ample runway for adoption of Apple's services."

"Concerns around Apple Intelligence's limited impact on iPhone demand and China competition will likely be replaced by a focus on the new slate of Apple Intelligence features revealed at WWDC 2025, the launch of new Mac, iPad, and iPhone SE products in Spring 2025, and potential for new product features for the iPhone 17/18," Goldman Sachs said.

Goldman Sachs rates Apple at "Buy" with a $280 price target.

Analysts at Barclays expect solid sales from Apple's Services and Mac product lineup to offset weakness in its iPhone business.

Barclays also said that its supply chain checks suggest a lower-than-expected volume launch of its upcoming rumored iPhone SE4 phone, which could weigh on the company's guidance for its second fiscal quarter.

"We think the March-Q guidance is the main event. We remain cautious given mixed iPhone data points recently, muted sell-through and more concerns on downward build revisions," Barclays said.

The firm said it expects Apple to sell 3 million of its yet-to-be-announced iPhone SE4 in the March quarter, which was below its initial expectations.

Barclays rates Apple at "Underweight" with a $183 price target.

Analysts at JPMorgan said Wall Street will be less focused on Apple's fiscal first-quarter results and instead be looking to the company's guidance for clues about its iPhone sales.

The bank said in a recent note that Apple's iPhone market share loss in China will "likely continue with the company already past its product cycle peak and with the consumer subsidies from the local administration to enable smartphone replacement for low to mid-tier phones, which excludes high-end smartphones."

The strong US dollar is also a headwind for Apple and will weigh down profits. JPMorgan observed that consumers have little appetite to pay a higher price for Apple iPhones outside of new product launches, giving the company limited flexibility in softening the blow from the strong dollar.

Despite these headwinds, JPMorgan said it expects Apple to maintain its premium valuation thanks to iPhone's pent-up replacement cycle and its rollout of new AI features.

"Apple remains one of the most favored Edge AI ecosystems to participate in the adoption of Edge AI with its broad presence across smartphones, PCs, and potentially more intelligent Smart Home devices in the future," JPMorgan said.

JPMorgan rates Apple at "Overweight" and lowered its price target to $260 from $265.

Wedbush analyst Dan Ives said in a recent note that the concern over Apple's reportedly weak China iPhone sales is "way overdone."

"Our recent Apple iPhone China checks are mixed to softer, but overall unit declines in the region we see as 'manageable,'" Ives said, adding that he expects the company to meet Wall Street's fiscal first-quarter revenue and profit expectations.

"We also believe Apple should have a strong performance on the services front which is the linchpin to the $4.5 trillion sum of the parts valuation we see over the next 12 to 18 months," Ives added.

Ives said the continued rollout of Apple's AI features is underappreciated by investors. He expects about 20% of the world's population will access AI features via an Apple device in the coming years.

"What the bears continue to miss on Apple is its golden installed base of 1.5 billion iPhones and 2.3 billion iOS devices is unmatched and will create a new AI driven growth story that the Street is not factoring into the stock," Ives said.

Wedbush rates Apple at "Outperform" with a $325 price target.

Apple's earnings results will likely showcase a recurring theme for its investors: weak iPhone sales in China to be offset by double-digit revenue growth in the company's services business.

That's according to Anurag Rana, senior industry analyst for the technology sector at Bloomberg Intelligence.

Weak consumer spending trends in China, combined with increased competition from Huawei, suggest to Rana that the weakness in Apple's China sales will continue into the future.

But iPhone sales in the Americas and Europe should be a bright spot, according to the recent note from Rana.

"A double-digit sales boost in Services will likely be another bright spot, driven by increased App Store use and other ancillary services tied to the recently released iPhone 16 models," Rana said.

Finally, Apple's stock buyback program could be another bright spot for investors, with Rana estimating share repurchase figures of $25 billion to $27 billion in the quarter.

1st quarter

• Revenue estimate: $124.1 billion

• Products revenue estimate: $98.02 billion

  • IPhone revenue estimate: $71.04 billion
  • Mac revenue estimate: $7.94 billion
  • IPad revenue estimate: $7.35 billion
  • Wearables, home and accessories estimate: $11.95 billion
• Service revenue estimate: $26.1 billion
• Greater China rev. estimate: $17.97 billion
• EPS estimate: $2.35
• Adjusted EPS estimate: $2.35
• Operating cash flow estimate: $39.03 billion
• Total operating expenses estimate: $15.34 billion
• Gross margin estimate: $57.98 billion
• Cash and cash equivalents estimate: $36.45 billion
• Cost of sales estimate: $65.98 billion
• Total current assets estimate: $165.17 billion
• Total current liabilities estimate: $167.07 billion

Source: Bloomberg data