• 2Q25 results were within our expectations. 1H25 revenue/PATMI were at 51%/54% of our FY25e forecasts. Revenue grew 5% YoY, mainly driven by growth in Services (+12% YoY), and gross margin expanded 0.5% YoY.
• iPhone sales +1.9% YoY, with regional strength offset by continued weakness in China (-2.3% YoY).
• We lower our FY25e and FY26e PATMI estimates by 2% and 4%, respectively, to account for the lower gross margin due to rising tariffs. We adjusted FY25e and FY26e’s CAPEX by 1.2x and 2.3x to account for the higher investment in US operations. We maintain our recommendation of NEUTRAL, with a lowered DCF target price of US$200 (previously US$235). WACC of 6.5% and a terminal growth rate of 3% remain unchanged. We maintain a cautious outlook on Apple, due to near-term headwinds from tariffs, elevated CAPEX, and persistent weakness in products and the China market.

·1Q25 results were within our expectations. 1Q25 revenue/PATMI were at 29%/32% of our FY25e forecasts. Revenue grew 4% YoY, mainly driven by growth in Services (+14% YoY) and gross margin expanded 1% YoY. 

· iPhone sales dropped 0.8% YoY, with regional strength offset by continued weakness in the China market (-11.0% YoY). 

· Our FY25e forecast remains unchanged. Our DCF target price remains at US$235, with a WACC of 6.5% and a terminal growth rate of 3%. Due to recent price performance, we downgrade our recommendation from ACCUMULATE to NEUTRAL. iPhone sales have not yet seen a spike, due to the very gradual and limited rollout of the regions and features. We expect it to be backloaded in 2H25 and FY26, especially after more regions and features are made available.

·   4Q24 revenue was within our expectations, while PATMI missed due to a one-time income tax expense of US$10.2bn to the Irish government. FY24 revenue/PATMI were at 97%/92% of our FY24e forecasts. iPhone growth of 6% YoY and Services growth of 12% YoY were the standout. 

·   The iPhone 16 series is benefiting from growing interest in Apple Intelligence, which began a gradual rollout this Oct. Sales increased across all regions except China, where local competition continues to weigh on performance. iPad/Mac/Wearables remain muted, with ongoing weakness expected into 1Q25e.

·    Our FY25e forecast remains unchanged. We roll over another year of valuations and upgrade our recommendation from NEUTRAL to ACCUMULATE with a raised DCF target price of US$235 (prev. US$215), with a WACC of 6.5% and a terminal growth rate of 3%. The gradual rollout of Apple Intelligence may take time, but we are confident it will positively impact the iPhone replacement cycle in FY25 and FY26.

• 9M24 revenue/PATMI was in line with expectations at 73%/77% of our FY24e forecasts. 3Q24 revenue growth of 5% YoY is led by strong services business (14% YoY)

• We expect a soft 4Q24 for AAPL due to ongoing weak iPhone sales in China and slower-than-expected global iPhone refresh cycles. However, a significant iPhone refresh super cycle is expected in FY25.

• We maintain a NEUTRAL rating. We decrease our target price to US$215 (prev. US$220.00), with a WACC of 6.5% and a terminal growth rate of 3%. We raised service margin by 2% to account for the margin improvement and cut FY24e iPhone unit estimates/revenue/PATMI by 4%/4%/2% to account for the delay in iPhone super cycle.

Apple held its annual Worldwide Developers Conference on June 10, where the company introduced Apple Intelligence, its AI framework that supports a range of new features that can be integrated across apps to perform tasks. It also unveiled updates to iOS 18, iPadOS 18, WatchOS 11, and MacOS 15 (Sequoia).

• The new features in Apple Intelligence include major AI-centric upgrades on Siri, AIpowered writing tools, custom AI-generated "Genmoji," and direct access to OpenAI's chatbot.
• The OS updates include user-centric enhancements that focus on personalization, security, writing tools, calculation, and device synchronization.
• We believe the newly announced features will likely trigger a new round of replacement cycle, as Apple Intelligence is only compatible with the iPhone 15 Pro/Pro Max and iPads and MacBooks with M series chips. Additionally, improved device synchronization is expected to further increase product demand, as people are more motivated to get a MacBook to pair with their iPhone (or an iPhone to pair with their MacBook) to enjoy the synchronization benefits.
• We downgrade to a NEUTRAL rating (from ACCUMULATE) after considering recent share price movements. We increase our target price to US$220 (prev. US$194.00), a WACC of 6.5%, and a terminal growth rate of 3%. We raise our iPhone unit estimates by 8%, and increased FY24e revenue/PATMI estimates by 5%/3% to account for higher upgrade demand for products.

Apple Intelligence

AI-centric upgrade on Siri. Siri is becoming smarter, more natural, relevant, and personal. Updates include: (1) responding to conversational language, (2) ability to cross-reference
information and perform actions across apps (for example, it can extract the event time from an invitation, cross-reference it with your calendar, and use maps to determine if you can
arrive on time), (3) summarize text in mail and other apps, AI writing tools that helps to rewrite & adjust tone of writing and (4) prioritized notifications that surface the ones that requires immediate attention

Image Creation features. Generative AI has been introduced in image generation, offering features such as (1) new Genmoji for creating customized emojis, (2) Image Playground for
generating new images across various apps, (3) advanced search capabilities for videos and photo libraries, and (4) new photo editing tools, including the Clean Up tool.

• 2Q24 results were within our expectations. 1H24 revenue/PATMI was at 52.2%/56.8% of our FY24e forecasts. Revenue declined by 4% due to a 10.5% YoY drop in iPhone sales. AAPL unveil record $110 billion buyback.
• AAPL's AI trajectory remains uncertain as the company refrained from disclosing additional details. Their disclosures on the forthcoming "Let Loose" iPad event (May 7th) and the Worldwide Developers Conference (June 10th) will shape the company's short—and long-term outlook.
• We upgraded to an ACCUMULATE rating from NEUTRAL due to share price losses. Our target price remains unchanged at US$194, with a WACC of 6.5% and a terminal growth rate of 3%. There is no change in the forecast.

The Positives

+  Strong gross margin delivery. AAPL’s 2Q24 gross margins of 46.6% (+2.3% YoY), beat its guided 45-46% range, despite a decline in revenue. The margin expansion is driven by 1) a higher mix of Services (e.g., Google payment, with practically 100% gross margin) and 2) a higher mix of Products (customers preferring premium models). Product margin declined by 10bps, mainly due to the decrease in iPhone revenue.

The Negatives

-  Weakness persists in revenue performance. AAPL reported revenue of US$90.8 bn, marking a 4.3% YoY decline, reflecting persistently low demand for its products. iPhone sales have declined for the second consecutive quarter, dropping by 10.5% YoY. This decline is primarily attributed to weak performance in the Chinese market, with a decrease of 8.1% YoY, influenced by China's slowing economy and increased competition from local rivals like Huawei. Although the decline was less than expected, AAPL's revenue performance overall has been sluggish. Compared to 2Q21, its revenue in 2Q24 has only increased by 1.3%. The company's guidance for 3Q24 also remains weak, with an expected revenue growth of low single-digit YoY. We estimate iPhone to remain flat or decline by single digit YoY in 3Q24e based on guidance.

-  AI strategy still shrouded in mystery. Unlike other Big Tech rivals who are very transparent with upcoming AI features, AAPL lags behind with clearer AI strategies. Despite assuring investors that AI has been deeply embedded within its software and services, the company has not made a big splash in the AI space yet. Management has indicated plans to unveil more details in the 'weeks ahead,' presumably waiting until its Worldwide Developers Conference on June 10^th. Whether AAPL can capitalize on the AI boom and unveil new AI features in the upcoming iPhone will influence the short & long-term outlook for AAPL.

• 1Q24 results were within our expectations with 1Q24 revenue/PATMI at 30%/33% of our FY24e forecasts. Historically, 1Q revenue/PATMI accounts for 31%/34% of the fiscal year forecast. Services growth of 11.2% YoY remains the standout, with AAPL’s installed base climbing to 2.2bn.
• Gross margin delivery came in at 45.9%, the high end of its guided 45-46% range, up 70 basis points sequentially due to higher iPhone Pro and services revenue. Products and service gross margin were at 39.4% and 72.8% sequentially.
• Weak demand for products remains a drag, with a 13% YoY revenue contraction from China also a concern due to increasing competition from domestic brands like Huawei.
• We downgrade to a NEUTRAL rating from ACCUMULATE due to recent share price gains. Our target price remains unchanged at US$194, a WACC of 6.5%, and a terminal growth rate of 3%. There is no change of forecast. As product sales remain muted, we expect Services to continue being the main drivers of growth.

The Positives

+  Strong gross margin delivery. AAPL recorded 1Q24 gross margins of 45.9%, coming in at the high end of its guided 45-46% range. Product margin expansion is driven by a higher mix of the pricier Pro version of iPhone, while the Services margin is driven by a record installed base of more than 2.2 bn. We expect a sustained growth in gross margin due to the recent robust performance of Services (11.2% YoY). The margin could expand further as the revenue mix shifts towards this more profitable segment. (The Services gross margin was at 72.8%, almost twice of that of Products gross margin of 39.4%).

The Negatives

-  Weak outlook for China. Revenue from China contracted 13.0% YoY in 1Q24 due to increased competition and FX headwinds. AAPL is struggling to battle local competitors like Huawei, who are edging into the high-end market that Apple has traditionally dominated. China represents roughly 20% of iPhones. We believe the continued weakness in China market will remain a drag on Product growth, especially when iPhone accounts for 58% of AAPL’s total revenue.

-  Weak demand for products remains a drag. Product revenue remain flat in 1Q24. iPad and Wearables saw revenue declines 26% and 11% YoY due to different product launch times and muted demand. iPhone revenue saw a 5.9% YoY increase, despite the weak demand in the China market. AAPL has guided flat growth of iPhone in 2Q24e while expecting iPad and Wearables to decelerate further. We believe the continued weakness in demand for AAPL’s other products will remain a drag on Product growth.

• 4Q23 results were within our expectations. FY23 revenue/PATMI were at 101%/100% of our FY23e forecasts. Services growth of 16% YoY was the standout.
• Services benefited from a higher installed base of >2bn active devices, while iPhone demand remains resilient – especially in China which saw record 4Q sales. iPad/Mac/Wearables remain a drag, with continued weakness moving into 1Q24e.
• We left our FY24e forecast unchanged but raised revenue/EBITDA by 5% for FY25e. We expect Services and iPhones to be the main drivers of growth and are encouraged by market share gains in China and India. As a result, we upgraded our rating from NEUTRAL to ACCUMULATE, with a raised DCF target price of US$194.00 (prev. US$$183.00), a WACC of 6.5%, and a terminal growth rate of 3%.

The Positives

+ Services benefit from higher installed-base. Services was the standout with revenue of US$22.3bn (16% YoY) beating our estimates by ~12%. Growth was broad-based across categories and geographies, and benefitted from AAPL’s growing installed base of >2bn active devices, and >1bn paid subscriptions. In our opinion, faster growth in Services vs Products is AAPL’s most significant way of expanding margins given Services Gross Margin is ~70%, twice that of Products. Services currently contribute ~25% of total revenue.

+ iPhone sales resilient. iPhone sales of US$43.8bn (3% YoY) were resilient given the uncertainty surrounding demand for tech hardware, beating both AAPL’s and our estimates. Much of the growth was driven by demand in emerging markets like India, Latin America, and China. Sales in China were a pleasant surprise given worries over increasing competition from Chinese manufacturers in the Premium smartphone category, with AAPL seeing record 4Q iPhone sales in China while the overall market contracted – implying market share gains for the company. Revenue growth from China would have been ~4% YoY in constant currency.

The Negatives

- Weak outlook for products. Aside from iPhones, AAPL’s other products (iPad/Mac/Wearables) saw revenue declines YoY as demand remained muted for these products. Product revenue contracted -5% YoY in 4Q23. AAPL’s outlook for its products was not any better, with the company guiding 1Q24e YoY acceleration only for Mac – although we still estimate contraction of 10-15% YoY, while expecting iPad and Wearables to decelerate significantly due to unfavourable timing of product launches. We believe the continued weakness in demand for AAPL’s other products will remain a drag on Product growth.

• 3Q23 results were within our expectations. 9M23 revenue/PATMI at 77%/76% of our FY23e forecasts. iPhone revenue declined 2% YoY in 3Q23.
• Revenue contraction was lower than company guidance due to strength in emerging markets and sales recovery in Greater China. Services growth re-accelerated, resulting in gross margin expansions.
• Mac and iPad are expected to decline by double digits in 4Q23 while mostly offset by the acceleration of iPhone and Services growth. 4Q23 revenue to fall 1-2% YoY.
• We maintain our NEUTRAL rating with an unchanged target price of US$183.00, a WACC of 6.5%, and a terminal growth rate of 3%.

The Positives

+ Continued growth in emerging markets. Revenue dipped 1% YoY to US$81.8bn, better than company guidance of 2-3% YoY contraction, driven by sales boost in emerging markets. iPhone set an all-time record in India with the performance of the recently opened stores in the country exceeding Apple’s expectations, while sales in Mexico, Indonesia, Philippines, Saudi Arabia, Tukey, and UAE also set the June quarter record. Greater China (~20% of revenue), which includes sales to China and Taiwan, also improved from 3% YoY contraction in 2Q23 to 8% YoY increase as iPhone sales improved, while Wearables and Services set June quarter records in the region.

+ Services growth re-acceleration. Segment revenue grew by 8% YoY to US$21.2bn, a re-acceleration from the 5% YoY growth in 2Q23 and better than company guidance of 5-6%. Growth came from across the board with categories like Cloud, Video, AppleCare, and payment services setting all-time revenue records, while App Store, advertising, and Music set a June quarter record. This was due to increasing customer engagement as both transacting accounts and paid accounts grew by double digits YoY. The number of paid subscriptions also exceeded 1 billion, up from the 975mn disclosed in 2Q23. Apple continues to leverage on its ecosystem strength and grow its installed base of >2 billion units. Gross margin also expanded 130bps YoY and 20bps QoQ as Services make up a larger portion of total revenue at 26% (vs 24% in 3Q22 and 22% in 2Q23).

The Negatives

- Mac and iPad continue decline. Revenue for Mac and iPad declined by 7% and 20% YoY, respectively. iPad recorded a larger decline due to unfavourable comparison against a full- quarter impact of then-newly launched iPad Air in 3Q22. Apple has guided for Mac and iPad sales to decline by double digits YoY in 4Q23 as both products experienced supply disruptions from a factory shutdown in 3Q22, which resulted in an unusually high sales in 4Q22 as Apple fulfilled a significant pent-up demand.

• 2Q23 results were within our expectations. 1H23 revenue/PATMI at 53%/54% of our FY23e forecasts.
• Revenue contraction was lower than company guidance due to better-than-expected iPhone sales. Gross margin expanded by 130 basis points QoQ.
• 3Q23 guidance is for revenue YoY decline of around 2%-3% with gross margin remaining stable QoQ. Weakness due to product revenue facing challenges from the macro conditions.
• We cut our FY23e revenue by 5% and PATMI by 4% to account for expected continued revenue contraction in 3Q23. We downgrade from BUY to ACCUMULATE rating with a lowered target price of US$183.00 (prev. US$186.00), with a WACC of 6.5%, and a terminal growth rate of 3%. We forecast FY23e revenue to contract relative to FY22 as sales are expected to continue declining in 2H23e, with positive growth returning in FY24e.

The Positives

+ Revenue beat company guidance. Revenue dipped 2.5% YoY to US$94.8bn, lower than company guidance of 5% YoY contraction due to better-than-expected iPhone sales. iPhone revenue grew 2% YoY to US$51.3bn despite FX headwinds and challenging macro conditions, driven by strong growth in emerging markets with revenue doubling in India, Indonesia, Turkey, and UAE. Mac/iPad revenue were down 31%/13% YoY, in line with guidance, as both products faced challenging comparisons and macro conditions. Services revenue grew 5.5% YoY (~11% in constant currency) to US$20.9bn, on top of a tough comparison against 2Q22 where it grew 17%. Apple indicated it has >975mn paid subscriptions, 2x from 3 years ago and up from 935mn disclosed in 1Q23.

 + Sequential gross margin expansion. Services gross margin expanded 20 basis points QoQ to 71%, partially offset by QoQ product gross margin contraction of 30 basis points to 36.7%. Overall gross margin expanded by 130 basis points QoQ to 44.3%, largely driven by favourable revenue mix towards Services (22% of total vs 18% in 1Q23) and cost savings.  

The Negatives

- Revenue contraction to continue. Apple guided YoY revenue performance in 3Q23 to be similar to that of 2Q23, implying a potential contraction of 2%-3%, with FX expected to be a headwind of 4%. This is below our initial expectation of positive sales growth in 2H23e. Services YoY revenue performance is also expected to be similar to its growth in 2Q23, suggesting a continued increase at ~6%, while facing challenges in digital advertising and mobile gaming due to the macroeconomic environment.