Service Business Slowdown Cannot Hide Hardware Strength! Morgan Stanley: Apple (AAPL.US) iPhone Production Surges, Shipments May Exceed Market Expectations

Bloomberg News has learned that while service business growth has slightly slowed, Apple’s (AAPL.US) overall demand remains resilient. According to the latest statistics from Morgan Stanley and data firm Sensor Tower, App Store revenue growth slowed in March, but iPhone production increased significantly year-over-year, indicating steady hardware demand.

Morgan Stanley analysts noted that as of March 18, net revenue from the App Store grew about 6% year-over-year in the month, a slowdown of approximately 3.1 percentage points compared to February, also influenced by a high base from the same period last year. From a quarterly perspective, App Store revenue has increased about 7% year-over-year so far, slightly below the bank’s previous forecast of 8% growth for the March quarter.

Regionally, App Store revenue shows divergence. China’s market grew about 4% year-over-year, while the US and Japan declined 2% and 5%, respectively, indicating some pressure in mature markets.

Despite short-term slowdown in service business, Apple’s core hardware performance remains strong. Data shows that this quarter, iPhone production reached about 52 million units, up 12% year-over-year. Analysts believe this production scale corresponds to shipments of approximately 57 to 58 million units, aligning with Morgan Stanley’s previous estimate of 58 million units and significantly exceeding the market consensus of 50 million units.

The analysts stated that the strong growth in iPhone production reflects sustained end-user demand, especially given the constraints on 3nm chip capacity, making this performance even more valuable. Apple’s prior strategy of increasing wafer orders is expected to support shipment performance in the first two quarters of 2026 and potentially boost earnings.

Overall, although App Store revenue growth faces short-term pressure, the continued strong demand for iPhones provides important support for Apple’s performance and highlights the company’s ability to balance hardware and ecosystem development.