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+, launched in 2015 and 2019 respectively.

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).

Apple's Financials

Apple posted a net income of $99.8 billion on revenue of $394.3 billion for its 2022 fiscal year (FY), ended Sept. 24, 2022. Apple refers to revenue as net sales in its financial reports. Both net income and revenue rose compared to the prior fiscal year. Net income grew 5.4% as revenue climbed 7.8%.

Apple breaks down its business by geographical segment, those being the Americas, Europe, Greater China, Japan, and Rest of Asia Pacific.

Across its markets, both Apple's products and services businesses grew in FY 2022. Revenue for the products business rose 6.3% compared to FY 2021, comprising about 80.2% of Apple’s total revenue. Among its products, iPhones accounted for 52.1% of total revenue; Macs, 10.2%; iPads, 7.4%; and Wearables, Home and Accessories, 10.5%. Services revenue grew 14.2% compared to the same quarter a year ago, contributing about 19.8% of Apple’s total revenue.

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. Apple has introduced many new services in recent years, including Apple Arcade, Apple TV+, Apple News+, and a branded credit card, Apple Card. The company offers many of its services in one simple plan called Apple One.

The high margins in Apple's services business have continued to rise. Gross margin as a percentage of sales was 71.7% in FY 2022, compared with 69.7% for FY 2021 and 66.0% for FY 2020. Gross margin as a percentage of sales for the products business was 36.3% for FY 2022, while it was 35.3% for FY 2021, and 31.5% for FY 2020.

iPhone

Apple's iPhone, the company's smartphone, is its top-selling product category by revenue. For FY 2022, iPhone net sales were $205.5 billion, representing 52.1% of total revenue and an increase of 7% relative to FY 2021. iPhone sales were boosted in 2022 thanks to new iPhone models released during that time.

The latest model, the iPhone 14, made its worldwide debut in September 2022. An iPhone 15 is widely rumored to be coming in September 2023.

Mac

The company's Mac category includes personal computers such as the MacBook Air and MacBook Pro laptops and the iMac, Mac Studio, and Mac Pro desktop computers. Mac sales generated $40.2 billion in revenue for FY 2022, 10.2% of total revenue for the year. Though Mac revenue is the second-lowest across Apple's product categories, above iPad, it was the fastest-growing category for the year. Mac net sales climbed by 14% compared with FY 2021, driven by higher net sales of laptops.

iPad

Apple's iPad products include a range of multipurpose tablets such as the iPad Air, iPad mini, and iPad Pro. iPad net sales for FY 2022 were $29.3 billion, or 7.4% of total revenue. Apple’s iPad product category generated the least revenue for the last year, and it was the only category that saw a year-over-year (YOY) decline in net sales relative to FY 2021. iPad revenue fell by 8% over that period, as sales of the iPad Pro slumped.

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. Apple's Wearables, Home and Accessories products accounted for $41.2 billion in revenue in FY 2022, or 10.5% of overall revenue for the year. Net sales for this category climbed by 7% YOY thanks to higher net sales of Apple Watch and AirPods.

Apple's most publicized product launch in early 2023 has been its Vision Pro headset, a goggle-like device described by the company as "a revolutionary spatial computer that seamlessly blends digital content with the physical world, while allowing users to stay present and connected to others." The Vision Pro is expected to hit stores in early 2024 with a price tag starting at $3,499.

Services

Apple combines a variety of its revenue streams under the services category. This part of Apple's business includes advertising services on Apple's platforms as well as through third-party licensing deals. It also includes the AppleCare brand, with fee-based service and support products. Cloud services and payment services with Apple Card and Apple Pay are also part of the broader services category, as is the company's digital content sales, such as the App Store and Apple Arcade. Apple does not provide a breakdown in its financials of the revenue generated by each one of these services individually, but only as a larger category.

Apple's services category was the second-largest source of revenue in FY 2022, although it came to less than half of iPhone revenue. Services net sales were $78.1 billion last year, 19.8% of total revenue. As mentioned above, services revenue has grown rapidly, climbing by 14% YOY for FY 2022 as a result of growth in advertising, cloud services, and the App Store.

Apple's Ongoing Challenges

Apple's dominance in certain business segments, particularly its App Store, has led to growing antitrust concerns and ongoing investigations in the United States and European Union.

In addition, the company's labor practices and that of its suppliers have come under fire, both in the U.S. and overseas.

In November 2022, a walkout by thousands of workers at a Foxconn factory in Zhengzhou, China, led to violent clashes with riot police and made international headlines. According to a BBC News report on the conflict, the "Zhengzhou plant employs more than 200,000 people, making Apple devices including the iPhone 14 Pro and Pro Max." The workers were protesting wages and working conditions, particularly resulting from a government-imposed lockdown of the facility due to the COVID-19 pandemic.

In June 2023, Reuters reported that Foxconn planned to start making some iPhones at a new plant in Devanahalli, India, by April 2024. "Apple has been shifting production away from China after the country's strict COVID-related restrictions disrupted the production of new iPhones and other devices in the country," Reuters explained. "The tech giant is also looking to avoid a hit to its business due to tensions between Beijing and Washington."

Apple addresses a wide range of labor and environmental matters in an "Apple Supplier Code of Conduct" on its website. The current version, which runs to 206 pages, was updated in December 2022.

Apple is also facing attempts at unionization by its retail workers. In June 2022, workers at an Apple Store in Towson, Maryland, voted to organize the Coalition of Organized Retail Employees, or CORE, and joined the International Association of Machinists and Aerospace Workers union. They were followed in October 2022 by workers in Oklahoma City, who formed the Apple Retail Union and joined the Communications Workers of America.

Unionizing efforts in some other cities have failed. In the wake of an attempt to organize an Apple Store in New York City, the National Labor Relations Board (NLRB) issued a complaint in September 2022, accusing the company of "interfering with, restraining and coercing employees in the exercise of the rights guaranteed in Section 7" of the Labor Relations Act. The act guarantees workers the right for unionize and to bargain collectively and makes it unlawful for their employers to interfere. In May 2023, two members of Congress, Rep. Emanuel Cleaver, II (D-Mo.) and Rep. Sylvia Garcia (D-Texas), asked the NLRB to investigate "reports that retail workers were fired and faced intimidation on the job for exercising their right to collectively organize" at Apple Stores in Kansas City, Mo., and Houston.

In a proxy statement filed with the U.S. Securities and Exchange Commission before its March 2023 annual shareholders meeting, Apple said that it planned to "to conduct an assessment on Apple's efforts to comply with its Human Rights Policy as it relates to workers' freedom of association and collective bargaining rights in the United States by the end of calendar year 2023."

How Apple Reports Diversity and Inclusiveness

As part of Investopedia's effort to increase the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Apple and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Apple releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. Information that Apple discloses about the diversity of its board of directors, C-suite, general management, and employees overall is marked with a ✔. It also shows whether Apple breaks down those reports to reveal its diversity by race, gender, ability, veteran status, and membership in the LGBTQ+ community.

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 dominate many of its other products, and its various services are growing revenue at a fast pace. But the company faces challenges to its continued revenue gains, including ongoing legal action regarding its App Store fees and mounting challenges from a variety of rivals.