Apple Inc.AAPL.USphone conference: revenue guidance exceeds expectations, profit margins negatively impacted by storage costs since Q3, additional $100 billion share buyback announced

Apple Inc. (AAPL.US) delivered a strong quarterly performance, but market attention is quickly shifting towards two major variables: a long-awaited transition of top leadership, and the potential pressure on future profit margins due to rising memory costs. After the U.S. stock market closed on April 30, Apple Inc. announced its second quarter earnings for the 2026 fiscal year, with revenue reaching $111.2 billion, a 17% year-on-year increase, setting a new historical high for the March quarter and exceeding previous guidance. At the same time, the company announced that it will complete the CEO transition in September this year, with current CEO Cook transitioning to the role of executive chairman, and the successor will be longtime Apple Inc. executive John Ternes. On the market side, Apple Inc.'s guidance for the next quarter shows a year-on-year revenue growth of 14% to 17%, but management warned that memory costs will continue to have "increasing impact" after the June quarter, and admitted that several Mac products still face supply constraints. Based on strong cash flow, Apple Inc. announced an additional $100 billion in share buyback authorization and a 4% increase in common stock dividend to $0.27 per share. However, it also announced the abandonment of the "net cash neutral" capital structure goal that had been in place since 2018. 01 Cook officially steps down: "There is no one I trust more on this planet" Before the earnings report, current CEO Tim Cook personally confirmed the market's focus event, stating that he will officially step down as CEO on September 1 this year, transitioning to the role of executive chairman and being replaced by current executive John Ternes. Cook stated during the meeting: I just celebrated my 28th year at Apple Inc., and have been CEO for 15 years. In fact, this will be my 89th quarterly earnings call. He added: Now is the right time for the transition. First, our business performance is extremely strong...Second, we have an incredibly strong product roadmap. Most importantly, we have the right leader ready to take over. Regarding the successor, Cook gave high praise: As I said, there is no one on this planet whom I trust more than John Ternes to lead Apple Inc. into the future. John is a talented engineer, a deep thinker, with extraordinary character, and a born leader. John Ternes also made a brief speech later, promising that after taking over in September, he will continue to maintain the "careful and disciplined financial decision-making" that Cook had during his tenure. He also revealed that the current Apple Inc. is in the most exciting period of his 25-year career in terms of "building the most exciting products and services." 02 iPhone 17 cycle is strong, demand for MacBook Neo "far exceeds expectations" On the business side, despite facing supply chain constraints, the new product cycle has shown strong momentum. iPhone business revenue reached $57 billion this quarter, a 22% year-on-year increase. Cook pointed out that the iPhone 17 series, including the newly added iPhone 17e, is the strongest product lineup in Apple Inc. history. The A19 and A19 Pro chips it carries deeply integrate Apple Intelligence, greatly driving upgrade demand. Cook cited third-party data showing that the iPhone 17 series has a customer satisfaction rate of 99% in the U.S. market. The Mac business is just as hot as the iPhone. This quarter, Mac revenue was $8.4 billion, a 6% year-on-year increase. However, management admitted during the Q&A session that the Mac business is facing serious supply constraints. Cook said: For the Mac Mini and Mac Studio, these two products are excellent platforms for AI and intelligent body tools, and customer acceptance is much faster than we predicted, so demand far exceeds expectations. Furthermore, customer response to the MacBook Neo has been overwhelming, with demand also far exceeding expectations. Cook further stated: Looking ahead, we believe it may take several months for the Mac Mini and Mac Studio to achieve supply-demand balance. 03 Service business hits a new high, advertising layout continues to expand Service revenue reached $31 billion, a 16% year-on-year increase, setting a new high, with almost all service subcategories breaking records. The number of paid accounts and transaction accounts reached historic highs, and Apple Inc.'s active device install base of over 2.5 billion continues to provide a solid foundation for the growth of this business. Advertising business achieved year-on-year growth. CFO Kevan Parekh confirmed during the analyst Q&A session that earlier this year, Apple Inc. introduced new advertising placements in App Store search results, and will launch advertising products targeting local businesses in the Apple Inc. maps in the U.S. and Canada this summer. He emphasized that Apple Inc.'s advertising strategy will remain committed to user privacy principles while expanding business. The service business gross margin was 76.7%, a slight 20 basis point increase from the previous quarter, mainly driven by changes in product mix. 04 AI drives up R&D expenses, management warns of rising storage costs Facing market attention on "intelligent smartphones" and edge AI architectures, Apple Inc. executives did not reveal specific product forms, but clearly stated that the company is significantly increasing investment in order to compete in the AI era. Cook said: You can see from our operating expense data that if we drill down, separating research and development from sales and administrative expenses, you will find that the acceleration of R&D expenses is much higher than the overall company growth rate. We are clearly investing heavily. Regarding the collaboration with Alphabet Inc. Class C on basic models, Cook briefly responded that the collaboration is progressing well. In response to market concerns about profit margins, management issued a warning. Kevan Parekh stated during the earnings call that product gross margins for the March quarter declined by 200 basis points, dragged down by weakened seasonal scale effects and rising memory costs. Cook added that in the Q2 quarter, higher storage costs were offset by the profit portion carried over to inventory, but in the following Q3 quarter, "we expect storage costs to rise significantly." Cook stated: I can tell you that after the June quarter, we expect storage costs to have an increasingly greater impact on our business. When asked whether rising costs will affect pricing or market share, Cook cautiously responded that "we will evaluate a range of options." The gross margin guidance range provided by management for the June quarter is between 47.5% and 48.5%, slightly lower than the current quarter. 05 Greater China surges by 28%, "excitement for India is indescribable" In terms of global expansion, Apple Inc. delivered remarkable results in two major emerging markets. Facing fierce competition, revenue in Greater China surged by 28% year-on-year this quarter, setting a new historical high for the region in the March quarter and growing by 33% overall in the first half of the year. Cook revealed that the iPhone is the best-selling model in urban areas, and the Mac Mini and MacBook Air are also the best-selling desktop and laptop respectively. Cook stated: I visited there in March, and the foot traffic in our stores saw double-digit growth...I am very satisfied with the progress in the first half of this year. Additionally, the Indian market is becoming a new core growth engine for Apple Inc. Cook referred to India as a "huge opportunity" and noted that the majority of Apple Inc. devices currently purchased by Indian consumers are their first ever. Cook emphasized: Overall, I am extremely excited about the Indian market, the excitement is truly indescribable. 06 Major changes in capital structure, abandoning "net cash neutral" target In terms of financial strategy, this earnings call released a highly impactful signal to the market: Apple Inc. will abandon the "net cash neutral" financial target it has been implementing for many years. Since 2018, Apple Inc. has been depleting its huge cash reserves to achieve a balance between cash and debt, reducing net cash by over $100 billion cumulatively. At the end of this quarter, Apple Inc. had $147 billion in cash and marketable securities, total debt of $85 billion, and net cash of $62 billion. CFO Kevin pointed out: As the company develops into a new stage, we believe that independently evaluating cash and debt is the right approach for us, allowing us to make better economic decisions based on business factors and market conditions, to optimize the use of our debt and cash portfolio. However, he emphasized that this change does not affect the company's commitment to returning excess cash to shareholders, with the additional $100 billion buyback plan being evidence of that commitment. Looking ahead to the third quarter of the 2026 fiscal year, Apple Inc. expects total revenue to grow by 14% to 17% year-on-year. Excluding the impact of exchange rates, the growth rate for the service business is similar to this quarter, and the overall gross margin is expected to be between 47.5% and 48.5%. This article is from "Wall Street News," authored by Baoyilong and Lidan, GMTEight editor: Licheng.