Apple Profit Drops 36% on EU Tax Charge as Services Revenue Hits $25 Billion in New Quarterly Record

Apple‘s bottom line took a hit from a recent European Union tax ruling, as smartphone revenue — including sales of its new AI-enabled iPhone 16 — rose 5.5% while the tech giant’s services segment turned in record revenue.

The company reported revenue of $94.93 billion, up 6.1%, and net income of $14.74 billion, down 36%, for the three months ended Sept. 28. That translates to earnings per share of 97 cents for the period, which is Apple’s fourth quarter of fiscal 2024. The quarter is the first to include sales of Apple’s iPhone 16 family, which include the tech giant’s new AI features and became available Sept. 20.

Apple said its earnings were hurt by a one-time $10.2 billion charge recognized in the September quarter “related to the impact of the reversal of the European General Court’s State Aid decision.” Excluding that, diluted earnings per share were $1.64, topping Wall Street forecasts. In September, the EU’s top court, the European Court of Justice, upheld a ruling that Apple owes €13 billion ($14.3 billion) in back taxes to Ireland because the country had granted Apple illegal tax benefits.

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Sales of iPhones were $46.22 billion in the quarter, better than analysts expected, compared with $43.81 billion in the year-earlier period.

For the September quarter, Apple’s services biz posted sales of $24.97 billion, up 12% year over year, slightly under analyst forecasts. The segment includes the App Store, Apple TV+, Apple Music, Apple Arcade, Apple News, Apple Card, iCloud and other services. The segment’s operating margin was 74%, unchanged from the prior quarter. CFO Luca Maestri said the company has “well over” 1 billion paid subscriptions (a figure that includes first- and third-party services). For the December quarter, Apple expects services revenue to grow at a rate similar to fiscal ’24, said Maestri, who is exiting the CFO role at the end of the year.

“During the quarter, we were excited to announce our best products yet, with the all-new iPhone 16 lineup, Apple Watch Series 10, AirPods 4, and remarkable features for hearing health and sleep apnea detection,” CEO Tim Cook said in announcing the results. “And this week, we released our first set of features for Apple Intelligence, which sets a new standard for privacy in AI and supercharges our lineup heading into the holiday season.”

On the earnings call, Cook said the initial Apple Intelligence features rolled out this week, which included video gen-AI capabilities, produced double the uptake of iOS 18.1 with Apple Intelligence versus iOS 17.1 over the same time period. In December, Apple plans to add more AI features, including integrating OpenAI’s ChatGPT.

”We believe [Apple Intelligence] is a reason to upgrade” to newer iPhones, Cook said. Apple Intelligence available on the iPhone 16 models as well as iPhone 15 Pro and Pro Max.

Overall, Wall Street analysts on average expected revenue of $94.58 billion and earnings per share of $1.60, according to LSEG. Sales of iPhones were expected to come in at $45 billion and services revenue was pegged at $25.2 billion.