Apple on Thursday forecast steady growth after third-quarter iPhone sales topped Wall Street targets, even as overall results in China disappointed.
The company’s shares rose 1% in extended trading.
Apple said revenue in the fiscal fourth quarter would grow at a similar level to the 4.9% growth it posted in the April-June period.
Its sales totaled $85.78 billion in the three months ended June 29, beating analysts’ average estimate of $84.53 billion, according to LSEG data. Its income had fallen in the first three months of the year.
iPhone sales fell 0.9% to $39.30 billion, a smaller decline than the 2.2% decline analysts had expected, as demand picked up ahead of the launch of artificial intelligence features.
Chief Financial Officer Luca Maestri told Reuters in an interview that iPhone results were better than he had expected three months ago. “The iPhone 15 family has been doing well since the beginning and still now – we have three quarters of the year behind us. It is performing better than the previous cycle, the iPhone 14.”
However, China – Apple’s third largest market – remained a drag as sales there fell 6.5%. While that was an improvement from the 8.1% decline in the previous quarter, it was wider than expected for a 2.4% decline, according to Visible Alpha.
Maestri said sales in China fell less than 3%, excluding foreign exchange effects.
Apple has taken to discounting its iPhones in China to compete with much cheaper alternative smartphones offered by local rivals such as Huawei. The company in May offered discounts of up to 2,300 yuan ($317) on select models.
“While discounted iPhone prices likely helped boost sales this quarter, the company’s future success depends on two factors: keeping AI development costs low and ensuring that new AI-driven features compel consumers price-sensitive to upgrade their devices,” said Emarketer analyst Jacob Bourne. .
AI push
Analysts expect a strong upgrade cycle for the iPhone 16 series, which is likely to launch in September. The company unveiled a range of AI products and services it calls Apple Intelligence at its developer conference in June.
CEO Tim Cook told investors Thursday that it was “too early to tell” whether Apple Intelligence was prompting people to upgrade their devices.
Apple Intelligence requires at least an iPhone 15 Pro to operate, which may prompt consumers to upgrade their devices.
But Apple’s AI features have arrived later than offerings from rivals, including Samsung Electronics, which has introduced competing devices aimed at hosting AI chatbots. Alphabet’s Microsoft and Google are also placing big bets on AI.
The company began ramping up research and development spending last year, and Cook has said it has spent more than $100 billion on R&D in the past five years.
Maestri told Reuters on Thursday that the company maintains “very good gross margins” despite the sometimes heavy costs associated with building and operating AI applications.
Apple splits its AI infrastructure costs between its data centers and other cloud providers it contracts with.
On the regulatory front, Apple faces three investigations in the European Union over the Digital Markets Act, which requires big tech companies to level the playing field for rivals and give users more choice. The bloc’s antitrust regulator has accused Apple’s App Store of DMA violations.
In the United States, the Department of Justice in March accused Apple of monopolizing the smartphone market and raising prices.
Apple’s quarterly earnings per share were $1.40, above Wall Street estimates of $1.35, according to LSEG data.
Sales in Apple’s services segment, which includes the App Store and represents Apple Music and TV products, rose 14.1% to $24.21 billion, above analysts’ expectations of $24.01 billion, according to LSEG data.
Mac sales rose 2.5% to $7.01 billion, compared with estimates of $7.02 billion, according to LSEG data.
The company’s iPad segment sales rose 23.7% to $7.16 billion, above analysts’ expectations of $6.61 billion, as Apple launched a new AI-focused iPad Pro and a larger iPad Air in May to revive demand for a product line that had been declining for the past two years.
In the company’s wearables segment, which represents sales of Apple Watches and AirPods, sales fell 2.3% to $8.10 billion, compared with analysts’ estimates of $7.79 billion, according to LSEG data.
Apple kept its dividend at 25 cents. In the second fiscal quarter, Apple announced a $110 billion stock buyback.
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