Apple reported better-than-expected iPhone sales for the third quarter and anticipates further growth, driven by upcoming AI enhancements, despite disappointing overall performance in China. The company’s shares rose nearly 1% in extended trading, outperforming other tech stocks.
Analysts predict the fall iPhone software upgrade will be significant, featuring AI capabilities, as Apple aims to catch up with competitors like Samsung. Revenue for the fiscal fourth quarter is expected to grow similarly to the 4.9% increase seen in the April-June period. iPhone sales declined slightly by 0.9%, less than the 2.2% drop anticipated.
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Chief Financial Officer Luca Maestri noted that the iPhone 15 series is performing better than the previous iPhone 14 cycle. However, sales in China, Apple’s third-largest market, fell by 6.5%, which, although better than the previous 8.1% drop, exceeded expectations of a 2.4% decline. Excluding foreign exchange effects, the drop was less than 3%. Apple has been discounting iPhones in China to compete with lower-priced local alternatives like Huawei, with discounts of up to 2,300 yuan ($317) offered on selected models.
AI initiative
Analysts anticipate a significant upgrade cycle for the iPhone 16 series, expected to launch in September, with Apple unveiling its new AI suite, Apple Intelligence, at its June developer conference. This suite requires at least an iPhone 15 Pro, potentially encouraging consumers to upgrade their devices.
While some analysts suggest that consumers might be purchasing high-end iPhone 15 models to access upcoming Apple Intelligence features, CEO Tim Cook mentioned it was “too early to tell” if this is influencing upgrades.
Apple’s AI advancements are arriving later than those from competitors like Samsung, which has already introduced AI-capable devices, and major tech companies like Microsoft and Google are also heavily investing in AI. Analyst Jacob Bourne from Emarketer noted that Apple’s future success will hinge on minimizing AI development costs and ensuring new AI features justify upgrades for cost-sensitive consumers.
Apple has significantly increased its R&D expenditure, spending over $100 billion in the past five years. Despite high AI-related costs, the company maintains strong gross margins, balancing AI infrastructure costs between its own data centers and external cloud providers.
Apple faces regulatory scrutiny in the EU and the US, with probes related to the Digital Markets Act and accusations of market monopolization.
In financial results, Apple reported earnings per share of $1.40, surpassing estimates, with services revenue rising 14.1% to $24.21 billion. Mac sales increased 2.5% to $7.01 billion, and iPad sales surged 23.7% to $7.16 billion. However, wearables sales fell 2.3% to $8.10 billion. The company maintained its dividend at 25 cents and announced a $110 billion stock buyback in the fiscal second quarter.
