Apple reported stronger-than-expected iPhone sales for the third quarter and forecasted further gains as it prepares to integrate artificial intelligence into upcoming models, despite disappointing performance in its Chinese market.
In after-hours trading, Apple shares rose nearly 1%, outpacing other tech stocks, which were generally lower. The company is set to unveil a significant software upgrade for the iPhone this fall, featuring AI enhancements, as competitors like Samsung have already introduced similar technologies.
Apple anticipates its fiscal fourth-quarter revenue to increase at a rate comparable to the 4.9% rise seen in the April-June period, which exceeded analyst expectations. iPhone sales for the third quarter also exceeded forecasts, declining only 0.9% compared to the anticipated 2.2% drop.
Chief Financial Officer Luca Maestri noted that the iPhone 15 series has performed better than the previous iPhone 14 cycle, with results surpassing initial expectations.
However, sales in China, Apple’s third-largest market, fell 6.5%, although this was an improvement from the 8.1% decline in the previous quarter. This was still worse than the expected 2.4% drop, according to Visible Alpha.
Excluding foreign exchange impacts, the decline was less than 3%, and Maestri expressed optimism about the company’s performance in China despite economic softness.
To remain competitive in China, Apple has offered discounts of up to 2,300 yuan ($317) on select iPhone models to counter local competitors like Huawei.
Looking ahead, analysts are optimistic about the upcoming iPhone 16 series, which is expected to drive upgrades. Apple has introduced new AI products and services, branded as Apple Intelligence, which will require at least an iPhone 15 Pro.
While some consumers might have upgraded to access these new features, CEO Tim Cook mentioned it was too early to determine if this trend was driving sales.
Apple’s AI initiatives have lagged behind those of rivals like Samsung, Microsoft, and Google, all of which have heavily invested in AI technology. Emarketer analyst Jacob Bourne highlighted that Apple’s future success will depend on controlling AI development costs and ensuring that new AI features encourage upgrades among price-sensitive consumers.
The company has increased its R&D spending, investing over $100 billion in the past five years. Despite the high costs of AI development, Maestri assured that Apple maintains strong gross margins.
Apple also faces regulatory challenges, with three ongoing investigations by the European Union related to the Digital Markets Act and accusations from the U.S. Department of Justice regarding market monopolization.
For the quarter, Apple reported earnings per share of $1.40, surpassing the Wall Street estimate of $1.35. The company’s services segment, including the App Store, grew 14.1% to $24.21 billion, above the $24.01 billion forecast.
Mac sales increased 2.5% to $7.01 billion, just shy of the $7.02 billion estimate, while iPad sales surged 23.7% to $7.16 billion, exceeding the $6.61 billion expected. Sales in the wearables segment, including Apple Watches and AirPods, declined 2.3% to $8.10 billion, better than the $7.79 billion forecast. The dividend remains at 25 cents per share, and Apple announced a $110 billion stock buyback program in the fiscal second quarter.
