Apple shares rise as iPhone 17 and MacBook Neo drive forecast

Apple on Thursday touted blowout demand for its flagship iPhone 17 and the MacBook Neo that helped power a solid sales forecast and sent its shares up nearly 4 percent after hours.

Apple, though, warned of continuing chip supply constraints, and the forecast underscored how it was fending off supply-chain pressures and rising memory chip costs with strong demand for its new Mac Neo, resilient services growth and robust sales in China.

The upbeat outlook and a fresh $100 billion share buyback offered reassurance to investors weighing Apple’s leadership transition amid intensifying competition in artificial intelligence.

Apple executives said they expect sales growth of 14 percent to 17 percent in the current fiscal third quarter, which was above Wall Street estimates of 9.5 percent growth to $102.93 billion, according to data from LSEG.

In the latest quarter, sales of the iPhone, still the company's best-selling product nearly 20 years after its introduction, were $56.99 billion, slightly less than estimates of $57.21 billion.

Apple CEO Tim Cook said iPhone sales were held back in the quarter by supply constraints for the advanced processor chips that form the brains of the device. The iPhone 17 family's chips are made on a variant of the same TSMC 2330.TW chip manufacturing technology as many leading AI chips.

"The demand was off the charts. And there's just a little less flexibility in the supply chain at the moment for getting more parts," Cook told Reuters.

‘Less Flexibility’ in Supply Chain

Driving Apple results in the fiscal second quarter was alsothe MacBook Neo, which costs $500 for students. Analysts believe it could help Apple crack a new $20 billion market for lower-priced laptops now dominated by Google Chromebooks.

Apple said Mac sales, which included several weeks of Neo sales, were $8.4 billion, compared with estimates of $8.02 billion.

Sales and profits were $111.18 billion and $2.01 per share for the fiscal second quarter ended March 28, above analyst expectations of $109.66 billion and $1.95 per share.

In the fiscal second quarter, existing inventory of memory chips helped Apple navigate rising prices for them. Apple said gross margins were 49.27 percent, above estimates of 48.38 percent.

But memory costs will catch up to Apple starting in the current quarter ending in June. Apple forecast gross margins of between 47.5 percent and 48.5 percent, with a midpoint slightly down from the just-reported quarter. That is still above analyst estimates of 47.6 percent.

"We expect significantly higher memory costs," Cook said during a conference call with analysts. "Where we don't give color beyond June, I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business."

Cook also said that Apple is seeking refunds for tariffs paid during the second administration of US President Donald Trump, and would reinvest those into US manufacturing.

Apple holds its annual software developer conference in June, where it is expected to reveal more details about its AI plans.

While Apple is not spending tens of billions of dollars per quarter on AI like its rivals, its research and development costs were up 33.5 percent to $11.42 billion in the fiscal second quarter.

Apple also said Thursday it is shifting back toward potentially holding more cash.

It will no longer aim to bring its net cash - cash minus debt - to a net neutral position, Apple Chief Financial Officer Kevan Parekh said during a conference call. Apple embarked on that goal in 2018 but still had $54 billion in net cash at the end of the first fiscal quarter in January.

DA Davidson analyst Gil Luria said the move was likely aimed at leaving Apple with more flexibility. "Not only is Apple getting a new CEO, but CFO Kevan Parekh may also be asserting a new approach to treasury management," he said.

Apple's services business, which includes revenue from its App Store, which has been under regulatory scrutiny in Europe and elsewhere, generated $30.98 billion in revenue for the fiscal second quarter, above analyst estimates of $30.39 billion.

Apple's greater China sales were $20.5 billion, beating analyst estimates of $19.45 billion, according to Visible Alpha data.