How Apple Makes Money

Apple Inc. (AAPL) is a global technology company that designs, manufactures, and sells smartphones, personal computers, tablets, wearables, and accessories. Its major products include the iPhone, the Mac line of personal computers, the iPad, Apple Watch, and Apple TV. The company also has a fast-growing services business that includes its iCloud cloud service and its digital content streaming services such as Apple Music and Apple TV+.

In June 2024 the company demonstrated its highly anticipated artificial intelligence (AI) functionality, Apple Intelligence, which it plans to roll out in a beta version in iPhones, iPads, and Macs starting this fall.

Apple's Financials

Apple posted a net income of $96.995 billion on revenue of $383.285 billion for its 2023 fiscal year (FY), ended Sept. 30, 2023. Apple refers to revenue as net sales in its financial reports. Both net income and revenue were down somewhat compared to the prior fiscal year. Net income fell about 1.8% from 2022's $99.803 billion, as revenue dropped 2.8%, from 2022's $394.328 billion.

While revenue from all of Apple's major product categories declined in FY 2023, some were harder hit than others. Net sales for iPhones, for example, fell just 2%, while Mac net sales fell 27%. Services, meanwhile, were up by 9%.

Apple breaks down its business by geographical segment, those being the Americas, Europe, Greater China, Japan, and Rest of Asia Pacific. There, too, net sales were down in every region but Rest of Asia Pacific, where they were up slightly.

iPhone

Apple's iPhone, the company's smartphone, is its top-selling product category by revenue. For FY 2023, iPhone net sales were $200.583 billion, or 52.3% of total revenue. That represented a 2% decline from 2022, which Apple said was "due to lower net sales of non-Pro iPhone models, partially offset by higher net sales of Pro iPhone models."

Current iPhone models include the iPhone 15 Pro, iPhone 15, iPhone 14, iPhone 13 and iPhone SE.

The iPhone 15 Pro models, introduced in the fourth quarter of FY 2023, are slated to get Apple's new AI capability starting in the fall of calendar 2024.

Mac

The company's venerable Mac category includes personal computers such as the MacBook Air and MacBook Pro laptops and the iMac, Mac mini, Mac Studio, and Mac Pro desktop computers.

Mac sales generated $29.379 billion in revenue for FY 2023, 7.7% of Apple's total revenue for the year. That represented a decline of 27% from the year before.

iPad

Apple's iPad products include a range of multipurpose tablets: the iPad, iPad Pro, iPad Air, and iPad mini. In terms of revenue, they constitute Apple's smallest major product category, accounting for $28.3 billion in FY 2023, a roughly 3% decline from 2022.

Wearables, Home and Accessories

Apple groups several of its other products together under the Wearables, Home and Accessories category. This portion of the company's business includes its AirPods wireless headphone line, the Apple TV media streaming and gaming device, the Apple Watch line of smartwatches, and HomePod and Beats products for the home, among others.

Apple's Wearables, Home and Accessories products accounted for $39.845 billion in revenue in FY 2023, or 10.4% of the company's overall revenue for the year, a decline of about 3%.

Services

Apple has mounted a major corporate strategy to reduce its dependence on lower-margin hardware products, which face slowing growth, while accelerating the growth of its services business, which has higher margins and a more predictable, recurring revenue stream. The gross margin in Apple's services business for FY 2023 was 70.8%, compared with 44.1% for its products business.

While Apple combines its services businesses into a single group for financial reporting purposes, they fall into five categories: advertising, AppleCare (technical support and services for Apple products), cloud services, digital content (including Apple Arcade, Apple Fitness, Apple Music, Apple News+, and Apple TV+), and payment services (including its co-branded credit card, Apple Card, and its Apple Pay cashless payment service).

Collectively, the group had net sales of $85.2 billion for FY 2023, up 9% for the year.

Apple's Ongoing Challenges

Apple faces numerous competitors, including smartphone manufacturers Samsung Electronics Co. Ltd. (005930) and LG Electronics Inc. (066570), computer manufacturers Lenovo Group Ltd. (0992) and Dell Technologies Inc. (DELL), streaming-content providers Spotify Technology S.A. (SPOT) and Netflix Inc. (NFLX), and other technology companies like Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN).

Even so, Apple's dominance in certain business segments has led to growing antitrust concerns and ongoing investigations in the United States and European Union. In March 2024, the United States Justice Department and 16 state and district attorneys general filed an antitrust lawsuit against Apple "for monopolization or attempted monopolization of smartphone markets in violation of Section 2 of the Sherman Act."

In addition, the company's labor practices and those of its suppliers remain under fire, both in the U.S. and overseas. Meanwhile, some members of Apple's largely non-unionized workforce have been attempting to organize. In May 2024, the National Labor Relations Board upheld a judge's ruling that Apple had violated labor laws at one of its New York City stores by questioning a worker about his support for a union and by barring workers from circulating union flyers at the store.

Apple has had mixed success in discouraging the unionization efforts. In May 2024, workers at a New Jersey Apple Store voted down a proposal to unionize, while, that same weekend, workers at a Maryland store that had already unionized authorized a proposal to go on strike over "unresolved workplace issues."

The Bottom Line

Apple is one of the largest and most ubiquitous companies in the world, and its massive annual revenue reflects that. The company's iPhone sales currently dominate its other products, and its various services are growing revenue at a fast pace. But the company faces challenges to its dominance, including ongoing legal actions around the world and mounting competition from a variety of rivals.