Apple reported better-than-expected third-quarter iPhone sales and forecast further gains, betting on artificial intelligence to attract buyers despite disappointing overall performance in China. Following the announcement, Apple’s shares rose nearly 1% in extended trading, outperforming other tech stocks.
Apple is expected to launch a significant software upgrade for the iPhone this fall, incorporating AI features. This comes as competitors like Samsung have already introduced similar services. The company forecasts a 4.9% revenue increase for the fiscal fourth quarter, aligning with the gains from April to June, which exceeded analysts’ estimates.
Third-quarter iPhone sales fell 0.9%, better than the anticipated 2.2% decline. CFO Luca Maestri highlighted the strong performance of the iPhone 15 series, noting it has outperformed the iPhone 14 throughout the year.
However, China, Apple’s third-largest market, posed challenges with a 6.5% sales decline, an improvement from the previous quarter’s 8.1% drop but worse than the expected 2.4% decrease. Maestri mentioned that excluding foreign exchange effects, China’s sales decline was less than 3%, and he expressed confidence in Apple’s performance amidst economic softness.
To compete with local rivals like Huawei, Apple has discounted its iPhones in China, offering up to 2,300 yuan ($317) off selected models. Analysts predict a robust upgrade cycle for the iPhone 16 series, expected to launch in September. Apple’s new AI products and services, branded as Apple Intelligence, were unveiled in June, requiring at least an iPhone 15 Pro, potentially driving consumers to upgrade.
CEO Tim Cook noted it was too early to determine if Apple Intelligence features were prompting upgrades. Apple has lagged behind rivals like Samsung, Microsoft, and Alphabet in rolling out AI features. Analyst Jacob Bourne emphasized the importance of keeping AI development costs low and compelling price-sensitive consumers to upgrade.
Apple has significantly increased its R&D spending, investing over $100 billion in the past five years. Despite the high costs associated with AI, Maestri stated that Apple maintains “very good gross margins” by splitting infrastructure costs between its data centers and contracted cloud providers.
Apple faces regulatory scrutiny in the European Union and the United States. The EU’s antitrust regulator has accused Apple’s App Store of breaching the Digital Markets Act, while the U.S. Department of Justice alleged Apple monopolizes the smartphone market, driving up prices.
Apple’s quarterly earnings per share were $1.40, surpassing Wall Street estimates of $1.35. The services segment, including the App Store and representing Apple Music and TV products, saw a 14.1% revenue increase to $24.21 billion, exceeding analyst expectations. Mac sales grew 2.5% to $7.01 billion, while iPad sales surged 23.7% to $7.16 billion, boosted by new AI-focused models. However, sales in the wearables segment, including Apple Watches and AirPods, fell 2.3% to $8.10 billion.
Apple maintained its dividend at 25 cents and announced a $110 billion stock buyback in the fiscal second quarter.
Featured Image courtesy of Caixin Global
Follow us for more updates on Apple’s Sales.