Apple's Q2 Earnings Beat Expectations: Revenue Increases 17% to $111.2 Billion, R&D Investment Soars 33%, and China Revenue Jumps 28%
Apple announced its fiscal 2026 second-quarter earnings, exceeding analyst expectations for both profit and revenue, driven by growth in its services business. iPhone sales fell short of market expectations for the second time in the last three quarters and were the only core performance data point that significantly missed expectations in Thursday's report. The company reported a 17% year-over-year revenue increase to $111.2 billion, surpassing the average analyst estimate of $109.7 billion. Apple had previously projected revenue growth of 13% to 16%. Earnings per share (EPS) were $2.01.
The market is also focusing on the performance of the following core business segments:
iPhone Revenue: $56.99 billion, compared to an expected $57.21 billion
Mac Revenue: $8.4 billion, higher than the expected $80.2 billion.
iPad Revenue: $6.91 billion, higher than the expected $6.66 billion.
Wearables, Home and Accessories Revenue: $7.9 billion, higher than the expected $7.7 billion.
Services Revenue: $30.98 billion, higher than the expected $30.39 billion.
Gross Margin: 49.3%, compared to an expected 48.4%.
Apple stated that revenue for the quarter increased 17% year-over-year compared to $95.4 billion in the same period last year. This is the first quarterly earnings report disclosed to Wall Street since Apple announced last week that CEO Tim Cook, who has been in the role for 15 years, will step down.
Apple announced a $100 billion additional stock repurchase plan and a dividend of $0.27 per share, a 4% increase year-over-year.
iPhone sales increased 22% year-over-year this quarter. Like other consumer electronics and hardware manufacturers, Apple is facing supply chain constraints, primarily due to a global shortage of storage chips driven by a surge in AI demand. Meta and Microsoft stated on Wednesday that rising storage chip prices were a key reason for increasing their capital expenditure forecasts for the year.
Cook said on the earnings conference call that the iPhone 17 series is now the "most popular lineup in Apple history" and pointed out that despite supply chain constraints, the company's overall revenue still exceeded its guidance.
In March, Apple released several new products, including the iPhone 17e, and new 11-inch and 13-inch iPad Air models with the M4 chip. The biggest highlight of the launch event was the MacBook Neo, an affordable laptop priced at $599, targeting students and budget-conscious consumers.
Hardware product sales have historically been a core pillar of Apple's performance, but Wall Street is currently most concerned about the future strategic layout of new CEO John Ternus. Apple announced on April 20th that Ternus would succeed Cook; Cook will transition to the role of Executive Chairman on September 1st.
Ternus, a veteran executive who has long led Apple's hardware business, attended the earnings conference call and was formally introduced by Cook. Cook said in his opening remarks, "We have a suitable successor in place to take over the CEO position," and added that Apple has a top-notch team capable of realizing the company's future vision.
Ternus expressed his gratitude to Cook and Apple shareholders and said the company has highly promising development plans for the future. Ternus said, "I won't reveal the specifics of this plan, but I can say with certainty that this is the most exciting period of product and service development in my 25 years at Apple."
One of Ternus's top priorities upon taking office is to finalize Apple's direction in the field of artificial intelligence. Earlier this quarter, Apple announced a partnership with Google to integrate Google Gemini, a large AI model, to provide technical support for the Siri voice assistant.
Apple's services revenue increased approximately 16% year-over-year this quarter, from $266.55 billion in the same period last year to $309.8 billion. Apple leverages its large iPhone user base to promote subscription entertainment services, Apple Pay, iCloud cloud storage, and AppleCare official warranty services.
The continued growth of the services business further boosted Apple's overall profit margin. Apple's gross margin has consistently hovered above 38%, and has steadily increased in recent years, rising from 48.2% last quarter to 49.3% this quarter.
Apple's sales in Greater China increased to $20.5 billion this quarter, a 28% year-over-year increase from $16 billion in the same period last year.
The company's R&D spending growth far exceeded revenue growth this quarter, with R&D expenses increasing 33% year-over-year, from $8.55 billion to $11.42 billion.