Apple reported first-quarter fiscal 2026 earnings that surpassed market expectations for both revenue and profit, driven primarily by strong iPhone sales during the year-end high season, along with positive signs from China. Meanwhile, its services business continued steady growth, and cash flow remained robust, easing investor concerns about hardware demand, sales trends in China, and long-term revenue quality, despite ongoing cost pressures and AI competition.
For the second quarter of fiscal 2026, ending 27 December 2025, Apple posted total revenue of $143 billion, up 16% year-over-year. Net profit reached $42 billion, with diluted earnings per share of $2.84, a 19% increase from the prior year.
These figures reflect a stronger revenue structure and profit margin than market worries had suggested, despite operating expenses being slightly higher than expected at $18.4 billion versus a forecast of $18.2 billion.
This quarter's key driver was iPhone revenue reaching $85.2 billion, significantly exceeding market expectations, pushing total product revenue to $113 billion. Other products like iPad performed better than expected, while Mac and the Wearables, Home, and Accessories segment fell short, indicating uneven demand recovery across categories.
Meanwhile, the services business generated over $30 billion in revenue, close to market estimates, underscoring the role of high-quality recurring income. Though lacking the strong upside of iPhone sales, services continue to support overall earnings stability.
Another positive highlight this quarter was the mainland China market, which generated revenue of $25.5 billion, a significant factor amid investor sensitivity to demand trends in China.
Apple CEO Tim Cook noted that this quarter marked the best iPhone performance in the company's history, fueled by strong demand across all regions. He revealed that Apple's active device base worldwide has surpassed 2.5 billion units, reflecting strong customer satisfaction with its global products and services. Additionally, Apple generated about $54 billion in operating cash flow and declared a dividend of $0.26 per share, demonstrating financial strength and ongoing shareholder returns.
However, Apple acknowledged that despite the excellent first-quarter results, sales remain constrained by chip shortages. During the analyst meeting, many questions arose about rapidly increasing memory chip costs driven by demand for AI data center chips, causing global supply shortages.
Cook highlighted a major issue: access to advanced chip manufacturing for Apple’s A-series and M-series System-on-Chip (SoC), currently reliant on TSMC, the leading chip manufacturer. Apple is seeking production capacity using 3-nanometer technology.
Cook admitted that rising memory chip prices will have a more noticeable impact next quarter, and the company is exploring various options to address the situation. Previously, Apple announced plans to invest over $600 billion in the U.S. over five years, partly to support domestic chip production, including TSMC.
In summary, Apple’s Q1 success was driven by strong iPhone sales combined with stable recurring revenue from services, positive surprises from China, and a solid balance sheet. These factors are expected to help maintain investor confidence in Apple going forward, even as the market closely watches its AI competitiveness and future demand trends.
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