Service business cooling can't hide strong hardware performance! Morgan Stanley: Apple Inc. (AAPL.US) iPhone production increases significantly, shipments may exceed market expectations.

While the growth of service business has slowed slightly, Apple Inc. (AAPL.US) overall demand still shows strong resilience. According to the latest statistics from Morgan Stanley and data agency Sensor Tower, Apple Inc.'s App Store revenue growth slowed in March, but iPhone production increased significantly year-on-year, indicating that hardware demand remains robust. Morgan Stanley analysts pointed out that as of March 18th, App Store net revenue month-on-month growth was about 6%, a slight slowdown from the approximately 3.1 percentage points growth in February, and also impacted by a higher base in the same period last year. From a quarterly perspective, App Store revenue growth was about 7% year-on-year, slightly below the bank's previous expectations of 8% growth for the March quarter. In terms of regional performance, App Store revenue showed a diverging trend. In China, revenue grew by about 4%, while the U.S. and Japan markets declined by 2% and 5% respectively, indicating some pressure in certain mature markets. Despite the short-term slowdown in service business, Apple Inc.'s core hardware business has performed well. Data shows that iPhone production this quarter reached about 52 million units, a 12% year-on-year growth. Analysts believe that the corresponding shipment volume for this production scale is about 57 million to 58 million units, which is essentially in line with Morgan Stanley's previous expectation of 58 million units, and significantly higher than the market's general expectation of 50 million units. Analysts stated that the strong growth in iPhone production reflects that end-demand remains solid, especially against the background of limited production capacity for 3-nanometer chips, making this performance more significant. Apple Inc.'s strategy of increasing wafer orders is expected to support the shipment performance for the first two quarters of 2026 and bring potential upward momentum to its performance. Overall, despite the short-term pressure on App Store revenue growth, the continued strong demand for iPhones provides important support for Apple Inc.'s performance, also highlighting the company's ability to balance between hardware and ecosystem.