How the company works
What it sells, how it makes money, and the anatomy of the extremes: what has to break for the result to land far from the forecast, either way. In Apple's own words, from its annual report for fiscal 2025.
Apple designs the iPhone, Mac, iPad and its wearables, has partners in Asia build them, and sells services to the people who own them.
How it makes money
Hardware sold at a premium, then services sold to the installed base. The company "designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications and related services". Net sales were $416.2B in fiscal 2025, up 6%, and net income $112.0B. The iPhone is the largest line; Services, at $109.2B and growing 14%, is the second line and the most profitable.
What it sells
| Line, fiscal 2025 | Sales | Change |
|---|---|---|
| iPhoneiPhone 17 Pro, iPhone Air, iPhone 17, iPhone 16 and 16e | $209.6B | +4% |
| ServicesApp Store, advertising, AppleCare, iCloud, Apple Music, Apple TV, Apple Pay and Apple Card | $109.2B | +14% |
| Wearables, Home and AccessoriesApple Watch, AirPods, Vision Pro, Apple TV 4K, HomePod | $35.7B | −4% |
| MacMacBook Air and Pro, iMac, Mac mini, Mac Studio, Mac Pro | $33.7B | +12% |
| iPadiPad Pro, iPad Air, iPad, iPad mini | $28.0B | +5% |
Net sales by category as Apple reports them. By region: Americas $178.4B, Europe $111.0B, Greater China $64.4B (down 4%), Japan $28.7B, Rest of Asia Pacific $33.7B.
Unit economics
Two margins. Products earn a gross margin of 36.8%; Services earn 75.4%, so the whole company earns 46.9% and the services share decides where the margin goes. Research is $34.6B a year, 8% of sales. 166,000 employees. 40% of sales go through Apple's own stores and website, 60% through carriers and resellers. The first fiscal quarter, with the holidays, is the biggest.
Competitive position
Apple says it has "a minority market share in the global smartphone, personal computer, tablet and wearables markets", and competes on integration: hardware, operating system, apps and services designed together, with a large base of active devices that the services sell into. Rivals "compete primarily through aggressive pricing and very low cost structures" and imitate its products. The company holds patents, designs and trademarks, but says it relies "primarily on the innovative skills, technical competence and marketing abilities of its personnel".
Biggest cost inputs
Components, some from single or limited sources, including custom parts made for Apple alone, and subject to industry-wide shortages and commodity price swings; rare earths; final assembly by partners in China mainland, India, Japan, South Korea, Taiwan and Vietnam; tariffs, which cut the products gross margin in fiscal 2025; research and headcount; and licensed technology.
Anatomy of a large upside
- Services keep compounding on the installed base. Services grew 14% to $109.2B at a 75.4% gross margin. Every device sold adds subscribers, advertising and App Store spend for years, and the company's margin keeps rising as the mix shifts toward them.
- A new device cycle. The iPhone 17 Pro and iPhone Air lines, the Mac up 12% on the company's own chips, and the Vision Pro open a new upgrade wave, and Greater China, down 4% in fiscal 2025, turns back up.
- Apple becomes the AI device. Hardware, operating system and silicon designed together put the company's AI on its base of active devices, pulling buyers to the premium models and lifting the mix.
Anatomy of a large downside
- App Store and payment rules cut the fee the Services line rests on. The EU's Digital Markets Act already forced alternative app distribution and payment processing; litigation and regulators elsewhere follow, and Services, the most profitable line, slows.
- Tariffs and trade restrictions reach a supply chain built in Asia. Final assembly of "substantially all of the Company's hardware products" is in Asia; tariffs already cut the products gross margin in fiscal 2025, and further restrictions raise costs or limit supply.
- Phone upgrades slow and Greater China keeps shrinking. Greater China sales fell 4% in fiscal 2025, Wearables fell 4%, and rivals "aggressively cut prices and lowered product margins". A longer upgrade cycle leaves the iPhone, the largest line, flat.
Written from Apple's annual report for fiscal 2025, in its words and numbers. The extremes are the long view, what has to break for the result to land far from the forecast; the quarter's own cases, each model's, are on the quarter forecast.