APPLE beat Wall Street’s quarterly profit estimates on Thursday (Jan 30), but iPhone sales and China revenue for the holiday quarter were weak due to stiff Chinese competition and a slow rollout of artificial intelligence (AI) features.
The company’s overall sales and profits were boosted by stronger-than-expected sales of iPads and Macs, where new chips helped persuade customers to upgrade.
The lack of AI selling points contributed to iPhone sales that dropped slightly to US$69.14 billion, compared with the US$71.03 billion that analysts were expecting, according to LSEG data.
Greater China sales dropped to US$18.51 billion, compared with US$20.82 billion a year earlier and below the US$21.33 billion that a Visible Alpha survey of five analysts expected.
Shares dipped 1.6 per cent in after-market trading.
Total sales of US$124.30 billion for the fiscal first quarter ended Dec 28 inched past Wall Street’s target of US$124.12 billion, according to LSEG, while earnings per share of US$2.40 comfortably beat the consensus target of US$2.35.
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The iPhone maker has positioned AI as a set of new capabilities and features such as drafting emails and transcribing phone calls, but the company is rolling the features out over time and has not yet secured a local partner in China to release them.
Weak China sales reflect Apple‘s inability to launch its AI software and services there, macroeconomic weakness and strong competition, all of which are likely to weigh on the current quarter too, said Tom Forte, senior consumer internet analyst at Maxim Group.
In an interview, Apple CEO Tim Cook said that AI features, called Apple Intelligence, are driving sales of the company’s new devices.
“We saw that in markets where we have rolled out Apple Intelligence, the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available,” Cook said.
While Cook said Apple Intelligence is coming in new languages such as French and German in April, he said there is no timeline for when it will become available in China. “We continue to work with the regulators and will release it as soon as we can,” Cook said.
Cook told Reuters that about half of Apple‘s 11 per cent decline in China revenues was attributable to changes in how much inventory the company’s resellers held.
“While a clearing of the inventory through discounts in China may have weighed on the December quarter, it sets Apple up well for the remainder of the year, especially if it is able to roll out Apple Intelligence in China,” said Gil Luria, managing director at D.A. Davidson.
Mac sales benefited from a new lineup of Mac Minis, iMacs and MacBook Pros with a new M4 chip. Apple Intelligence features are more widely available on Apple‘s Macs and iPads because their larger size means they have more powerful chips.
“The silicon makes it perfect for running AI workloads, and so I assume that that’s a very key compelling reason for people to upgrade,” Cook said. Apple‘s Mac and iPad sales hit US$8.99 billion and US$8.09 billion respectively, above estimates of US$7.96 billion and US$7.32 billion, according to LSEG data.
Apple said its services business, which includes iCloud storage and its streaming music and video services, hit US$26.34 billion in sales, up 13.9 per cent from the previous year and above estimates of US$26.09 billion, according to LSEG data.
“While the company’s cautious approach to AI rollout has drawn criticism, robust services growth and ecosystem expansion are providing crucial momentum to help ease its continued iPhone struggles in China,” said Emarketer analyst Jacob Bourne.
The firm’s wearables segment, which includes the Apple Watch and AirPods lines, had US$11.75 billion in sales, compared with analyst expectations of US$12.01 billion, according to LSEG data. REUTERS
