Apple logo on display. Source: Business Strategy Hub
Apple has reported better-than-expected iPhone sales for the third quarter, despite some challenges in its China market. The company announced this on Thursday, seeing nearly a 1% rise in its shares in after-hours trading, a positive shift compared to other tech stocks, which generally experienced declines.
In a notable development, Apple is preparing for what analysts are calling the biggest software upgrade for the iPhone this fall. This update will feature advanced artificial intelligence (AI) capabilities, aiming to attract more buyers. Apple’s rivals, like Samsung, have been quicker to introduce similar technologies, putting Apple in a competitive position.
For its fiscal fourth quarter, Apple anticipates revenue growth similar to the 4.9% increase it reported for the April-June period. This was notably better than what analysts had predicted. iPhone sales saw a slight dip of just 0.9% in the third quarter, a smaller decline than the 2.2% drop that analysts had expected.
Chief Financial Officer Luca Maestri expressed satisfaction with the iPhone’s performance, saying, “The iPhone 15 family has been doing well from the very 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, Apple's performance in China, its third-largest market, has been disappointing. Sales in the region fell by 6.5%, though this was an improvement from the 8.1% decline reported in the previous quarter. This drop was greater than the anticipated 2.4% decrease. Maestri mentioned that when excluding currency effects, the decline was less than 3%, and he remains optimistic about Apple's position in the Chinese market despite its economic softness.
To compete with cheaper local alternatives like Huawei, Apple has been offering discounts in China. In May, the company reduced prices by up to 2,300 yuan ($317) on certain models.
Looking ahead, analysts are expecting strong demand for the upcoming iPhone 16 series, likely to be released in September. The company has introduced new AI products and services under the banner of Apple Intelligence at its developer conference in June. To utilize these new AI features, users will need at least an iPhone 15 Pro, potentially encouraging more consumers to upgrade their devices.
Despite the late arrival of AI features compared to competitors, Apple has made significant investments in research and development. CEO Tim Cook stated that the company has spent over $100 billion on R&D in the past five years. Maintaining high gross margins is crucial as AI development can be costly. Apple manages these costs by dividing its AI infrastructure between its own data centers and external cloud providers.
In regulatory news, Apple is dealing with several probes. In the European Union, the company faces scrutiny under the Digital Markets Act (DMA) for alleged breaches related to its App Store. In the U.S., the Department of Justice has accused Apple of monopolistic practices in the smartphone market.
For the latest quarter, Apple’s earnings per share were $1.40, exceeding Wall Street’s estimate of $1.35. Sales in its services segment, including Apple Music and TV, rose by 14.1% to $24.21 billion, surpassing expectations. Mac sales grew by 2.5% to $7.01 billion, and iPad sales increased significantly by 23.7% to $7.16 billion, driven by new AI-focused models. However, sales of wearables, including Apple Watches and AirPods, fell by 2.3% to $8.10 billion. Apple also maintained its dividend at 25 cents per share and announced a $110 billion stock buyback earlier this year.
