Apple forecast a sales slump would proceed into the present quarter, sending shares down despite beating Wall Street sales and profit targets within the fiscal third quarter.
Apple shares dropped about 2% after the mixed results and outlook. Strength in services drove the profit beat within the third quarter, but weaker than expected sales of Apple’s most famous device, the iPhone, underwhelmed investors. Executives said iPhone sales would improve but didn’t say how much.
Apple is in a fragile position, with its entrenched iPhone battling for share against Android rivals in a mature market, while its next big product – the Vision Pro mixed-reality headset announced in June – isn’t yet within the hands of consumers.
Apple said sales for the fiscal third quarter ended July 1 fell 1.4% to $81.8 billion and earnings per share rose 5% to $1.26. That topped analyst expectations of $81.69 billion and $1.19 per share, in keeping with IBES data from Refinitiv. Weaker iPhone sales were balanced by strong sales within the services segment that comprises Apple TV+ and by sales in China that grew 8% 12 months over 12 months.
iPhone sales were $39.67 billion, below analyst expectations of $39.91 billion.REUTERS
Apple Chief Financial Officer Luca Maestri said the corporate expects a year-over-year revenue performance in the corporate’s fiscal fourth quarter ending in September just like the drop the corporate reported on Thursday. That sales forecast is below analyst expectations of roughly flat fiscal fourth-quarter sales of $90.19 billion, in keeping with Refinitiv data.
Apple pegged the gross profit margin within the September quarter at 44% to 45%, while analysts on average expected 43.4%, in keeping with Refinitiv data.
Apple’s research and development spending also hit $22.61 billion for the fiscal 12 months to date, about $3.12 billion higher than at this point within the previous 12 months.
Apple Chief Executive Officer Tim Cook told Reuters in an interview that the increased R&D spending was partly driven by work on generative artificial intelligence, the identical field that’s driving spending at other big technology corporations.
“We’ve been doing research across a big selection of AI technologies, including generative AI, for years. We’re going to proceed investing and innovating and responsibly advancing our products with these technologies to assist enrich people’s lives,” Cook said. “Obviously, we’re investing quite a bit, and it’s showing up within the R&D spending that you simply’re .”
While Big Tech rivals including Microsoft and Alphabet’s Google are spending billions on dueling chatbots and other AI technologies, Cook said that AI would show up in Apple products as latest features. One such feature, he said, might be the iPhone’s ability to transcribe voice mail messages in real time, starting this autumn.
Within the meantime, Apple appeared to outperform what has been the weakest smartphone market in China in almost a decade. Overall smartphone sales declined 8% in China within the calendar second quarter to their lowest levels since 2014, in keeping with Counterpoint Research. In contrast, Cook told Reuters that Apple’s iPhone sales in China grew by “double digits” and that sales were also high in other segments in China.
Apple Chief Executive Tim Cook said the increased R&D spending was partly driven by work on generative artificial intelligenceGetty Images
That helped Apple push sales in its greater China region to $15.76 billion, from $14.60 billion in last 12 months’s same quarter.
“This was really done by attracting a quarterly record of switchers to the iPhone, in addition to having a powerful upgrader activity,” Cook said. “We also set quarterly records in China for each wearables, home and accessories, and services.”
Apple said iPhone sales were $39.67 billion, below analyst expectations of $39.91 billion, in keeping with Refinitiv data. Cook said the installed base of iPhones hit a latest high but gave no numbers.
“The corporate continues to face headwinds attributable to waning growth within the smartphone market,” said Insider Intelligence analyst Jeremy Goldman. “All eyes are actually on its earnings call for any potential Vision Pro or AI-related announcements that would further push the boundaries of their business model.”
Apple’s services segment, which incorporates its Apple TV+ service which has announced a deal to hold Major League Soccer, had $21.21 billion in revenue, compared with analyst estimates of $20.76 billion, in keeping with Refinitiv data.
Cook said Apple now has 1 billion subscribers on its platform, which incorporates each Apple services and third-party apps, up from 975 million 1 / 4 ago.
“Services revenue was a brilliant spot, reaching the best quarterly sales amount on record due to soaring search-licensing revenue,” said Jesse Cohen, senior analyst at Investing.com.
The corporate’s wearables business, which incorporates the Apple Watch and AirPods, had revenue of $8.28 billion, compared with analyst estimates of $8.39 billion, in keeping with Refinitiv data.
Mac and iPad sales were $6.84 billion and $5.79 billion, respectively, compared with analyst estimates of $6.62 billion and $6.41 billion, in keeping with Refinitiv data.
“Almost half of the Mac buyers through the quarter were latest to the product, and we proceed to see strong upgrader activity to Apple Silicon,” Cook told Reuters.