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Will Strong Services Offset Weak iPhone Sales for AAPL's Q2 Earnings?
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Apple’s (AAPL - Free Report) second-quarter fiscal 2025 results, to be reported on May 1, are expected to reflect stiff competition for iPhone in China. However, will continued strong growth in the Services business offset this headwind?
iPhone sales are likely to have suffered from stiff competition in China from Chinese vendors, including Huawei and Xiaomi. A delay in the launch of Apple Intelligence to a major part of Apple’s installed base, including Mainland China, has been a concern.
Although Apple’s business primarily revolves around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. For the Services segment, Apple expects a low double-digit growth rate on a year-over-year basis in the to-be-reported quarter.
The Zacks Consensus Estimate for fiscal second-quarter iPhone net sales is pegged at $46.45 billion, suggesting 1.1% year-over-year growth. The consensus mark for Services is currently pegged at $26.76 billion, suggesting 12.1% growth on a year-over-year basis. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Click here to learn how Apple’s overall fiscal second-quarter earnings results are likely to be.
Services Growth to Ride on Apple TV+, Strong Install Base
Apple’s Services business is expected to benefit from the growing install base of active devices has been a key catalyst. Apple had more than 1 billion paid subscribers across its Services portfolio at the end of the fiscal first quarter. Paid subscriptions grew double-digits, a trend expected to have continued in the to-be-reported quarter.
Severance, along with Ted Lasso, Slow Horses and Silo, are a few of the Apple TV+ shows that have gained fame in recent years. The company leverages Apple TV+, along with Apple Music, Apple Arcade, and Apple Pay, to attract users to its Services portfolio, which currently has more than 1 billion paid subscribers, more than double what Apple had four years ago.
Apple to Benefit From Y/Y Growth in Mac Sales
The PC segment climbed up in the first quarter of calendar 2025. Per IDC, Apple had a market share of 8.7%, up 70 basis points (bps) on a year-over-year basis. Shipment grew 14.1% year over year to hit 5.5 million. According to Gartner, Mac shares inched up 20 bps while shipments increased 7% year over year.
Apple’s shipment growth rate is the largest in IDC’s vendor list, followed by ASUS and Lenovo’s growth of 11.7% and 4.8%, respectively. According to Gartner’s list, ASUS was placed at the #1 spot with shipment growth of 9.1%, trailed by Lenovo’s 9.6% growth and Apple’s 7% growth.
Apple’s Mac business is benefiting from strong demand for M4, M4 Pro, and M4 Max chips. In March, Apple expanded its Mac portfolio with the new MacBook Air powered by the M4 chip with up to 18 hours of battery life and a new 12MP Center Stage camera. Apple also announced the new Mac Studio featuring M4 Max and the new M3 Ultra chip. The new chip is the most powerful created by Apple and features double Neural Engine cores, Thunderbolt 5 with more than two times the bandwidth per port for faster connectivity and robust expansion.
The Zacks Consensus Estimate for fiscal second-quarter Mac net sales is pegged at $7.79 billion, suggesting 4.6% year-over-year growth.
Apple’s iPad Sales to Increase Y/Y
iPad accounted for roughly 6.5% of fiscal first-quarter net sales. Strong demand for iPad Pro and the launch of 11-inch and 13-inch iPad Air benefited sales, which increased 15.2% year over year to $8.09 billion. The momentum is expected to have continued in the to-be-reported quarter.
In March, Apple introduced the faster, more powerful iPad Air with the M3 chip and built for Apple Intelligence. iPad Air with M3 is nearly 2X faster compared with iPad Air with M1, and up to 3.5X faster than iPad Air with A14 Bionic.
The Zacks Consensus Estimate for fiscal second-quarter iPad net sales is pegged at $5.92 billion, suggesting 6.5% year-over-year growth.
What Our Model Says
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.
Apple currently has an Earnings ESP of -0.85% and a Zacks Rank #3 (Hold). You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Stocks to Consider
Here are some companies worth considering, as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:
Image: Bigstock
Will Strong Services Offset Weak iPhone Sales for AAPL's Q2 Earnings?
Apple’s (AAPL - Free Report) second-quarter fiscal 2025 results, to be reported on May 1, are expected to reflect stiff competition for iPhone in China. However, will continued strong growth in the Services business offset this headwind?
iPhone sales are likely to have suffered from stiff competition in China from Chinese vendors, including Huawei and Xiaomi. A delay in the launch of Apple Intelligence to a major part of Apple’s installed base, including Mainland China, has been a concern.
Although Apple’s business primarily revolves around its flagship iPhone, the Services portfolio has emerged as the company’s new cash cow. For the Services segment, Apple expects a low double-digit growth rate on a year-over-year basis in the to-be-reported quarter.
The Zacks Consensus Estimate for fiscal second-quarter iPhone net sales is pegged at $46.45 billion, suggesting 1.1% year-over-year growth. The consensus mark for Services is currently pegged at $26.76 billion, suggesting 12.1% growth on a year-over-year basis. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Apple Inc. Revenue (TTM)
Apple Inc. revenue-ttm | Apple Inc. Quote
Click here to learn how Apple’s overall fiscal second-quarter earnings results are likely to be.
Services Growth to Ride on Apple TV+, Strong Install Base
Apple’s Services business is expected to benefit from the growing install base of active devices has been a key catalyst. Apple had more than 1 billion paid subscribers across its Services portfolio at the end of the fiscal first quarter. Paid subscriptions grew double-digits, a trend expected to have continued in the to-be-reported quarter.
Severance, along with Ted Lasso, Slow Horses and Silo, are a few of the Apple TV+ shows that have gained fame in recent years. The company leverages Apple TV+, along with Apple Music, Apple Arcade, and Apple Pay, to attract users to its Services portfolio, which currently has more than 1 billion paid subscribers, more than double what Apple had four years ago.
Apple to Benefit From Y/Y Growth in Mac Sales
The PC segment climbed up in the first quarter of calendar 2025. Per IDC, Apple had a market share of 8.7%, up 70 basis points (bps) on a year-over-year basis. Shipment grew 14.1% year over year to hit 5.5 million. According to Gartner, Mac shares inched up 20 bps while shipments increased 7% year over year.
Apple’s shipment growth rate is the largest in IDC’s vendor list, followed by ASUS and Lenovo’s growth of 11.7% and 4.8%, respectively. According to Gartner’s list, ASUS was placed at the #1 spot with shipment growth of 9.1%, trailed by Lenovo’s 9.6% growth and Apple’s 7% growth.
Apple’s Mac business is benefiting from strong demand for M4, M4 Pro, and M4 Max chips. In March, Apple expanded its Mac portfolio with the new MacBook Air powered by the M4 chip with up to 18 hours of battery life and a new 12MP Center Stage camera. Apple also announced the new Mac Studio featuring M4 Max and the new M3 Ultra chip. The new chip is the most powerful created by Apple and features double Neural Engine cores, Thunderbolt 5 with more than two times the bandwidth per port for faster connectivity and robust expansion.
The Zacks Consensus Estimate for fiscal second-quarter Mac net sales is pegged at $7.79 billion, suggesting 4.6% year-over-year growth.
Apple’s iPad Sales to Increase Y/Y
iPad accounted for roughly 6.5% of fiscal first-quarter net sales. Strong demand for iPad Pro and the launch of 11-inch and 13-inch iPad Air benefited sales, which increased 15.2% year over year to $8.09 billion. The momentum is expected to have continued in the to-be-reported quarter.
In March, Apple introduced the faster, more powerful iPad Air with the M3 chip and built for Apple Intelligence. iPad Air with M3 is nearly 2X faster compared with iPad Air with M1, and up to 3.5X faster than iPad Air with A14 Bionic.
The Zacks Consensus Estimate for fiscal second-quarter iPad net sales is pegged at $5.92 billion, suggesting 6.5% year-over-year growth.
What Our Model Says
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.
Apple currently has an Earnings ESP of -0.85% and a Zacks Rank #3 (Hold). You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Stocks to Consider
Here are some companies worth considering, as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:
Affirm (AFRM - Free Report) presently has an Earnings ESP of +63.27% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Affirm shares have declined 17.1% year to date. Affirm is set to report its third-quarter fiscal 2025 results on May 8.
Compass (COMP - Free Report) has an Earnings ESP of +16.67% and a Zacks Rank of 2 at present.
Compass shares have gained 30.4% year to date. Compass is set to report its first-quarter 2025 results on May 8.
CyberArk Software (CYBR - Free Report) currently has an Earnings ESP of +3.90% and a Zacks Rank #2.
CyberArk Software shares have climbed 5.9% year to date. CyberArk Software is set to report its first-quarter 2025 results on May 13.