Apple’s record quarter: Is this what a hit iPhone looks like?

As was foretold (in last quarter’s corporate guidance), on Thursday Apple reported its biggest quarter ever. The holiday quarters are always Apple’s biggest, and this was no exception. It offered the most revenue ($143.8B) and most iPhone revenue ($85.3B) of any financial quarter in Apple’s history.

Suffice it to say that the iPhone 17 family is a hit.

“This is the strongest iPhone lineup we’ve ever had, and by far the most popular,” Apple CEO Tim Cook said during his conference call with analysts. As for the quarter itself? “It exceeded our expectations, to say the least.” Spoken like a man whose most popular product, the one vital to his company’s existence, grew 23% from the year-ago quarter.

Even more interesting, though, is Apple’s suggestion that it’s still selling the iPhone 17 about as fast as it can make them—or to be more specific, about as fast as TSMC can make cutting-edge 3nm chips to power them, per Cook:

We exited the December quarter with very lean channel inventory due to that staggering level of demand, and based on that, we’re in a supply chase mode to meet the very high levels of customer demand. We are currently constrained, and at this point, it’s difficult to predict when supply and demand will balance. The constraints that we have are driven by the availability of the advanced nodes that our SOCs are produced on, and at this time, we’re seeing less flexibility in the supply chain than normal, partly because of our increased demand that I just spoke about.

Those details are really interesting. Back during the height of the pandemic, sales were constrained because Apple lacked access to “legacy nodes”—chips made on older processes for stuff like Wi-Fi and Bluetooth. That is definitely not the case now, when it’s the “advanced nodes” of 3nm chips at TSMC that are just not being built fast enough because demand was much higher than Apple expected.

This also extends a long-standing story that the Chinese market really likes a new-looking iPhone. Overall, Apple’s revenue was up 38% in China. Cook said that traffic in Chinese Apple Stores grew by “strong double digits,” and cited surveys that said the iPad was the top-selling tablet in urban China and the MacBook Air and Mac mini were the top-selling laptop and desktop in the last quarter in urban China. Cook, a longtime proponent of Apple’s business in China, seems thrilled.

Department of the Tough Compare

Mac revenue was down 7% in the quarter, the poorest performance of all Apple’s categories. But it’s hard to be that down about the results, because not only did the Mac still generate $8.4B in revenue and reach an all-time high in its overall installed base, but this was all happening in a quarter that is the proverbial “tough compare”—since Apple released the M4 MacBook Pro, Mac mini, and iMac in the year-ago quarter, and only the low-end M5 MacBook Pro in this quarter.

Full credit to analyst Michael Ng of Goldman Sachs for the most creative way possible of trying to get Apple to reveal its future product strategies: Ng asked Apple CFO Kevan Parekh if there would be any tough comparisons due in the upcoming quarter, to which Parekh replied, “There’s nothing that rises to that kind of color that we’d outline in the outlook.”

Let me translate this for you: Ng is wondering if, perhaps, Apple is going to release some nice new Macs this quarter that will mean that it’s not a “tough compare” versus Q2 of 2025. Parekh replied by essentially pointing at his previous statement and saying that the dog did not, in fact, bark.

Look, we know there will be new MacBook Pros eventually, and probably pretty soon. Maybe they’ll help with Q2 Mac sales, though at this point they’d only be able to contribute for about half of the quarter. Still, a gold star to Ng for trying to logic his way into getting Parekh to reveal things about future product releases.

The storm clouds of financial headwinds… are called off

Apple posted a company gross margin of 48.2%, based on a 40.7% products margin and an astounding 76.5% margin on services. This was actually above the high end of Apple’s previous guidance on margin. This fact left several analysts on the call flabbergasted, none more so than Ben Reitzes of Mellius:

You know, I’m pretty shocked. I got to hand it to you, Tim, that you’re able to do 48% to 49%. What’s really going on there? How are you doing that with… the [memory] prices?

Parekh’s answer was basically that Apple tended to sell more of its high-margin products than its lower-margin ones during the quarter, which pushed margin up. What really impressed the analysts was his insistence that even this upcoming quarter, where memory price issues are expected to become even more serious, Apple says it feels “pretty good” about its guidance to another 48% to 49% margin quarter.

Looking more broadly at Apple’s forecast, the company says the second quarter should offer 13% to 16% growth versus the year-ago quarter. Considering that the Q2 2025 revenue number was $95.4B, this means Apple expects to generate somewhere between $108B and $111B in revenue next quarter. That’s just a staggering number, because it suggests that even Apple’s boring quarters are going to routinely generate more than $100B in revenue. (For the record, last year’s fourth quarter was the first non-holiday quarter with more than $100B in Apple revenue. This would be the second. There may be no going back.)

Odds and ends

A few other notes about the numbers and call before I wrap it up:

The iPad, bolstered by the A16 base iPad and the M5 iPad Pro, was up 6%.

Wearables was down 2%, marking 10 straight quarters of year-over-year decline. (I suspect the softness in this category is why Apple is reportedly planning on launching several new home-based products, including a screen-based controller and a security camera.) However, here’s an interesting tidbit: Apple said it couldn’t make AirPods Pro 3 fast enough to meet demand, and that it believes the category would have grown had it not been for that supply constraint.

Forget profits and revenues. “This quarter set an all-time record for operating cash flow, coming in at $53.9 billion,” Parekh reported. Accounting nerds, this is your stand up and cheer moment. The cash must flow!

Everyone wants to know more about Apple’s AI deal with Google, but Apple’s not talking. “We aren’t going to provide any details on our arrangement and collaboration with Google,” Parekh said. Cook emphasized that it should be thought of “as a collaboration,” rather than Google just riding in and saving Apple’s bacon. When Ben Reitzes of Mellius tried to get more out of Cook, only to be stonewalled, he replied: “Bummer. Okay, I tried,” he said. “You did,” the CEO replied through a squall of laughter.