Apple's quarterly net profit exceeds $30 billion, AI strategy set as not participating in arms race

On November 3 Beijing time, Apple announced its fourth fiscal quarter earnings report. According to Apple's fiscal year division, it is actually reporting results for July-September 2026.

As the first earnings report since Ternus took office as CEO, the results are still quite impressive: overall revenue of $114.48 billion, up 12% year over year; profit of $30.711 billion, up 12% year over year. At the same time, despite unfavorable factors such as memory price increases, Apple's gross margin remained as high as 47.9%. Although it achieved the "most brilliant fiscal year in history," Apple's stock performance was less than satisfactory, plunging more than 3.8% in premarket trading as of press time.

(Image source: Baidu Finance)

However, in the view of Leitech (ID: leitech), the part of this earnings report concerning the Chinese market is also worth noting: Apple's revenue in the Chinese market continued to increase this quarter, and at the same time, Apple Intelligence for China will also be fully rolled out. China market revenue surged, with iPhone still the biggest contributor

Apple's earnings data shows that revenue in Greater China reached $17.5 billion in July-September, up 21% year over year, the fastest-growing region in the statistics. On the earnings call, Ternus was very satisfied with Apple's performance in the Chinese market. He believes that revenue growth in the Chinese market was mainly driven by iPhone sales, followed by Mac.

Data from third-party statistical agencies confirms this. According to an IDC report, in Q3 this year, overall smartphone shipments in China totaled 58.06 million units, down 15.2% year over year; iPhone shipments exceeded 10.33 million units, down 4.3% year over year. However, although Apple's phone sales were lower than the same period last year, the decline was much smaller than the overall market, and its market share actually increased from 15.8% to 17.8%.

It is also worth noting that the new iPhone models released in September this year were only the iPhone 18 Pro and iPhone 18 Pro Max, and the absence of the standard version affected Apple's autumn phone shipment performance to some extent. However, due to the increased share of high-end models, iPhone sales still drove Apple's revenue growth.

(Image source: Leitech)

On the PC side, Apple released a number of new Mac products this year, including the new Mac mini, new Mac Studio, MacBook Neo, MacBook Air (M5 version), and others, forming a relatively complete product matrix covering multiple price segments. Among them, the MacBook Neo itself is a newly emerging product type positioned for the entry-level market. After memory price increases pushed up PC prices this year, the cost-effectiveness of the budget-positioned MacBook Neo became more prominent, and it achieved good sales.

The rise of Agent tools represented by "Lobster" since the beginning of the year has greatly boosted Mac sales. Although Apple has not made many moves in the AI PC field, the Mac's own advantages such as unified memory architecture, low power consumption, and high stability make the Mac naturally more suitable as a carrier for Claw tools. In this way, Apple, which missed the AI wave, benefited from it in another form.

However, a long-term lag in the AI field will ultimately inevitably affect sales of Apple's hardware devices. After all, in 2026, AI phones, AI PCs, and even Agent phones and Agent PCs are gradually becoming trends. In the Chinese market, the China version of Apple Intelligence has long failed to launch, leaving iPhone and Mac with persistent weak points in competition.

Over the past two years, China-market iPhones have been a blank zone for the global version of Apple Intelligence. Due to compliance requirements, the overseas version of Apple Intelligence cannot be used on China-market devices. For Apple, the simplest and most effective solution is to cooperate with domestic AI giants.

There have always been rumors about cooperation between Apple and Alibaba in the AI field. In August this year, an article titled "Use Qwen with Apple Intelligence on Mac" appeared in the Mac user guide on Apple's China website, stating that Apple Intelligence for China could integrate with Qwen. However, the document was taken down less than a day after it went online, and Apple officially did not respond.

By October 31, everything was finally settled. Apple announced that the first developer beta of iOS 27.3 would be released on November 4, enabling some Apple Intelligence features in mainland China, with the official version to be pushed in December. On the same day, Alibaba officially announced that it had reached a cooperation with Apple, with Qwen integrated into Apple Intelligence.

According to the relevant introduction, the specific AI functions of Apple Intelligence for China are distributed across various scenarios, and users can invoke Qwen's text and image understanding and content generation capabilities through three entry points: Siri, Writing Tools, and Visual Intelligence. Other core AI features enabled in the first batch also include real-time translation and the erase tool in the Photos app.

(Image source: Apple)

Alibaba's announcement shows that Apple Intelligence for China is intended for China-market iPhones and "users whose device region and Apple Account country/region are both set to mainland China." That is to say, in addition to China-market iPhones, overseas-version iPhones also have a chance to use the China AI, but they need to sign in with a China-region ID and use the device in the mainland region.

In addition, regarding the privacy and security issues that everyone is concerned about, Apple and Alibaba have also provided further explanations. Specifically, Apple users can independently choose whether to link their Qwen accounts. At the same time, all data must obtain user permission before being transmitted externally. More importantly, the instructions users issue to Qwen, as well as the conversations between the two parties and AI-generated content, will not be stored by Alibaba or used for subsequent model training.

Looking at it this way, the AI cooperation model between Apple and Alibaba is quite similar to that between Apple and Google. Simply put, Apple devices will not directly connect to these AI giants' cloud models; Apple will directly purchase their model technology and then build cloud services on its own servers based on it. In this way, it can both obtain advanced AI capabilities and ensure the security of private data.

For Alibaba's Qwen, this cooperation is a victory at both the technical and commercial levels: its own large model, beyond standalone apps and API calls, has entered the system-level entry point of the world's number one brand's mobile phone terminals. For Apple, by choosing Alibaba, which has localized computing power, ecosystem resources, and compliance experience, as its partner, it can fill the AI shortcomings of China-market devices in a very short time, while also ensuring the overall product experience and market competitiveness. Apple AI does not participate in the arms race; it just wants to make money

Ever since Apple announced its entry into the AI field, there has been constant news about Apple's own large model research and development. But Apple's self-developed large model capabilities have consistently been lacking, with an obvious gap compared with the models of AI giants. Therefore, Apple has successively reached cooperation with OpenAI, Google, and Alibaba. Given Apple's consistent style, in this situation it should have invested large amounts of funds to catch up and keep the initiative in its own hands; previously, on issues such as chips, basebands, and systems, Apple took exactly this attitude.

First, Apple has not engaged in a computing power arms race and still chooses to maintain an asset-light, high-profit model.

In the current AI competition, AI giants and major internet companies have spent massive amounts of money on AI infrastructure, with annual spending on GPUs often running into tens of billions of dollars. Apple has no such plan; its self-developed AI focuses more on the device side, and the neural engine computing power of its A-series and M-series chips increases with each iteration. High-frequency tasks that do not consume much computing power, such as text summarization, photo erasure, and real-time translation, are basically completed locally and offline.

Of course, for generative tasks that require large computing power, Apple will also solve them through cloud models. But, as mentioned earlier, Apple directly purchases technical solutions from AI giants, and its own investment is basically just maintaining server operation. At present, Apple still holds more than $100 billion in cash flow, and its investment in AI is far behind that of Google, Amazon, Meta, Microsoft, and other companies.

At the earnings call, the AI monetization model expressed by Ternus was very simple and direct: the AI features on devices such as the iPhone are offered free to users as a basic version, and those who want more quota and stronger features have to pay more. Judging from the information Apple has disclosed so far, Apple's paid AI projects will be integrated into the existing subscription model and may be merged with iCloud+.

For a long time, services including iCloud, Apple Music, and App Store commissions have all been Apple's high-profit cash cows. The Q4 financial report shows that in the past quarter, Apple's services revenue reached $31.57 billion, up 9.8% year on year, with growth already slowing compared with previous years. If the AI payment path can be made to work, Apple's services revenue can be further expanded, while also covering part of Apple's AI investment costs.

(Image source: Apple)

In addition, Apple's AI features will certainly not be limited to the iPhone and will comprehensively cover almost all hardware devices.

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Apple has updated multiple products, to a large extent, to give them the hardware foundation for accessing Apple Intelligence. The earliest models supporting AI features are the iPhone 15 Pro released in 2023, and there is still a considerable number of older iPhones in use that cannot access Apple Intelligence. By expanding its hardware matrix and bringing more devices beyond phones into Apple Intelligence, especially Siri AI, in addition to consolidating ecosystem advantages and improving experience, Apple probably also has the idea of laying the foundation for AI monetization.

Overall, this financial report delivered by Ternus is enough to prove that Apple still has terrifying money-making ability after Cook steps down. In the view of Leitech (ID: leitech), Apple's strategy in the AI era is already very clear: it neither wants to be drawn into a cloud computing power arms race that easily runs into tens of billions of dollars, nor intends to stubbornly insist on self-developing large models. Instead, through an asset-light model of partnering with Alibaba's Qwen in China and with OpenAI and Google overseas, it fills in the AI experience.

Frankly speaking, this approach is very consistent with Apple's consistent profit-maximization strategy. Whether it is launching new forms of hardware such as HomeView or trying to integrate advanced AI features into iCloud subscriptions for monetization, both show that Apple is trying to use its huge hardware ecosystem to grow an AI money tree.

In this wave of memory price increases brought by AI, Apple can still maintain an exaggerated gross margin of nearly 48%, which is enough to show the dominance of its brand and products. However, in today's world where the AI wave is impacting every industry, Apple is still unwilling to place heavy bets on AI and remains conservative overall. Although doing so can preserve its currently beautiful financial performance, it also means giving up the possibility of leading the AI phone industry in the future.

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