Apple (AAPL.US) held its Q4 2025 earnings call on October 31, reporting strong performance in device upgrades during the September quarter, setting a new record. However, it is still too early to discuss specific trends for iPhone 17 upgrades and switchers.
Channel inventory levels were at the lower end of the target range by quarter-end, primarily due to supply constraints for certain iPhone 16 and 17 models. Notably, several iPhone 17 variants remain in short supply, driven by exceptionally strong demand rather than production ramp-up issues. Apple is working to fulfill all orders.
Greater China revenue declined 4% YoY in the September quarter, largely due to iPhone supply constraints. However, the company is optimistic about a rebound in the December quarter, citing significant YoY traffic growth and strong initial reception for the iPhone 17 lineup.
**Key Highlights from Q&A:**
**1. iPhone 17 Success Drivers** Apple attributes the iPhone 17’s success to its product strength, calling it the company’s strongest lineup ever. The iPhone 17 Pro offers premium design and performance, the iPhone Air delivers ultra-thin portability, and the standard iPhone 17 provides high value by incorporating features previously reserved for Pro models.
**2. Component Cost Management** Despite rising memory prices, Apple’s procurement team has mitigated cost pressures, benefiting from slight favorable trends in memory and storage pricing. Gross margins reached 47.2%, exceeding guidance, with Q1 2026 projected at 47%-48%.
**3. Greater China Recovery Outlook** Retail traffic in China has improved YoY, and iPhone 17 demand is robust. Apple expects a return to growth in the December quarter.
**4. Services Growth** Services revenue hit a record $28.8 billion in Q4, with full-year revenue surpassing $100 billion (+14% YoY). Growth was broad-based across categories and regions, with no one-time items contributing.
**5. Supply Constraints & Tariffs** iPhone 17 supply shortages persist due to underestimated demand. Tariff costs are expected to rise from $1.1B to $1.4B in Q1, partly offset by China’s tariff reduction from 20% to 10%.
**6. AI and Future Investments** Apple is expanding investments in AI and its product roadmap, driving R&D-led OpEx growth. The company maintains a hybrid data center strategy (own + third-party) and is scaling its Private Compute Cloud for Apple Intelligence.
**7. Mac Challenges** Mac faces tough YoY comparisons after a strong 2024 refresh cycle but continues to outpace the broader market.
**8. Foldable Market & iPhone Air** Apple sees iPhone Air and foldable phones as distinct products, with no direct correlation in demand trends.
Apple remains confident in its AI strategy, combining in-house models, third-party partnerships, and potential M&A. The M5 chip series will further strengthen Apple’s silicon leadership.