The chip crunch was supposed to catch up with Apple. It did not. The firm told the Street that next quarter will grow nearly twice as fast as the call. Shares popped more than 3% on Friday.
Q2 sales rose 17% to $111.18 billion, up from $95.4 billion a year earlier. The Street had been at $109.66 billion, per LSEG.
The size of the guide is what got people. Most tech firms are bracing for memory costs to crush margins this year, so the upside guide stood out.
Apple sees Q3 sales rising 14% to 17% from a year ago. Analysts had been at 9.5%, per LSEG. The June quarter ends mid-summer, so the boost has to come from the iPhone 17 cycle and the new low-cost MacBook Neo that hit shelves in March.
CEO Tim Cook called the iPhone 17 the most popular lineup in Apple's history. He said buyer response to the MacBook Neo has been "off the charts, with higher-than-expected demand."
Margins held up too. Gross margin reached 49.3% in the quarter, up from 48.2%. Apple guided 47.5% to 48.5% for the June quarter, even with chip costs going up.
Apple has more than 2.5 billion active devices in the world. That base is what drives the services line. iCloud, Apple Pay, AppleCare, and the firm's TV and music subs all sit in that line, which rose 16% to $30.98 billion.
Services run at much higher margins than gear. Each new dollar from subs helps the bottom line more than each dollar from a phone. That helps explain why margins held up.
The mix is the story. iPhone sales came in light. Mac, iPad, and services all beat. The Street focused on the parts of the firm that scale without big new plants.
Wall Street pressed Cook on chip costs. He said the firm would "look at a range of options" as the crunch grows. He did not pick one path.
Morgan Stanley wrote that the print made them feel "much better about Apple's ability to manage margins" than they had thought. The shop lifted its full-year EPS call, which is profit per share of stock, to $8.89 from $8.63.
Not every desk bought it. KeyBanc, with a hold rating, said the margin guide is "not showing the expected memory price crunch." That leaves a question mark over the back half of the year.
Cook is stepping down in September after 15 years at the top. This is one of his last earnings calls as CEO. The next chief will inherit a firm whose services arm is now its highest-margin line.
For now, the guide is the message. Apple is telling the Street that even with rising chip costs, the services flywheel and a hot product cycle can carry the next quarter.
The Q2 print held up well across product lines. The firm beat on Mac, iPad, and services. It only came up short on iPhone sales. Services revenue alone hit $30.98 billion, up from $26.65 billion a year ago.
The services line runs at higher margins than gear. That gives Apple a built-in shock absorber against memory price moves. It is also why the gross margin print held up even with chip costs going up.