• 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.