Apple’s sales decline is expected to persist into the current quarter, causing a drop in the company’s shares despite surpassing Wall Street’s sales and profit targets in the fiscal third quarter.
Following the latest period, Apple’s shares dipped approximately 2% as the company foresees the possibility of a fourth consecutive quarter with declining sales.
While the profit beat was driven by robust services performance, investors were disappointed by weaker-than-expected iPhone sales, which is Apple’s most renowned device. Although executives expressed optimism that iPhone sales would pick up in the fourth quarter, they refrained from providing specific figures.
Apple is currently navigating a challenging landscape where its established iPhone is competing for market share against Android rivals in a mature market. Simultaneously, the company’s highly anticipated next-generation product, the Vision Pro mixed-reality headset, announced in June, is yet to reach consumers’ hands.
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During the fiscal third quarter that ended on July 1, Apple’s sales decreased by 1.4% to $81.8 billion, while earnings per share increased by 5% to $1.26. These figures exceeded analyst expectations of $81.69 billion and $1.19 per share, respectively, according to IBES data from Refinitiv.
The decline in iPhone sales was offset by robust performance in the services segment, which includes Apple TV+, and exhibited an 8% year-on-year growth in sales in China.
Apple’s Chief Financial Officer, Luca Maestri, disclosed that the company anticipates a similar year-over-year revenue performance in the fiscal fourth quarter, which concludes in September.
However, this sales forecast falls below analyst expectations of approximately flat sales totaling $90.19 billion for the fourth quarter, as reported by Refinitiv data.
Daniel Newman, the Chief Executive and Principal Analyst at research firm Futurum Group expressed concern about the timing of a potential sales volume upswing and the future growth of iPhone sales.
Regarding profit margins, Apple projects a gross profit margin of 44% to 45% for the September quarter, exceeding analyst expectations of 43.4%, according to Refinitiv data. Although Apple expects double-digit growth in its service segment, which includes Apple TV+, iPad, and Mac sales, Maestri did not provide further details during the call.
Apple’s research and development spending has reached $22.61 billion for the current fiscal year, which is $3.12 billion higher than the previous year at this point.
Chief Executive Officer Tim Cook explained that the increased R&D spending is partly driven by advancements in generative artificial intelligence, a field that is also influencing spending at other major technology companies. Cook emphasized the company’s commitment to responsible innovation, leveraging AI technologies to enhance people’s lives.
China emerged as a bright spot for Apple, outperforming what has been a weak smartphone market in the country for nearly a decade.
While overall smartphone sales in China declined by 8% during the calendar second quarter, Apple’s iPhone sales in the region experienced double-digit growth, along with robust sales in other segments. Consequently, Apple achieved $15.76 billion in sales in its greater China region, up from $14.60 billion during the same quarter last year.
The company’s services segment, which includes Apple TV+ and recently secured a deal to carry Major League Soccer, generated $21.21 billion in revenue, exceeding analyst estimates.
Apple also achieved a significant milestone, reaching 1 billion subscribers on its platform, which encompasses both Apple services and third-party apps.
In addition, Apple’s wearables business, featuring products like the Apple Watch and AirPods, recorded revenue of $8.28 billion. While this figure slightly missed analyst estimates, the Mac and iPad sales surpassed expectations, with revenues of $6.84 billion and $5.79 billion, respectively.
According to Cook, nearly half of the Mac buyers during the quarter were new to the product, showcasing strong upgrader activity to Apple Silicon.
With the smartphone market’s growth slowing down, industry experts are now eagerly awaiting Apple’s earnings call for any potential announcements related to the Vision Pro mixed-reality headset or developments in the field of AI that could further propel the company’s business model.
