Apple said revenue in its fiscal fourth quarter would grow at a similar rate to the 4.9 percent increase the company reported in the April-June period. (Representational Graphic)
Apple reported Thursday that iPhone sales beat expectations in the third quarter and forecast even higher profits as the company bets on artificial intelligence to attract buyers, even as overall sales in China disappointed.
The company’s shares rose nearly 1 percent in extended trading, outperforming other technology stocks that were generally lower.
Apple is expected to launch what analysts are calling the biggest software upgrade for the iPhone this fall, adding artificial intelligence features and coming as rivals such as Samsung are rolling out similar services more quickly.
Apple said revenue in the fourth fiscal quarter would grow at the same rate as the 4.9 percent growth reported in the April-June period, beating analysts’ estimates.
iPhone sales also rose in the third quarter, falling just 0.9 percent compared to the 2.2 percent decline analysts had expected.
Chief Financial Officer Luca Maestri told Reuters in an interview that the iPhone results were better than he had expected three months ago. “The iPhone 15 family has been doing well since the beginning and still — we’ve got three quarters of the year under our belt. It’s outperforming the previous cycle, the iPhone 14.”
Still, China, Apple’s third-largest market, remained a drag, with sales there falling 6.5 percent. While that was an improvement from the 8.1 percent decline in the previous quarter, it was wider than expectations for a 2.4 percent decline, according to Visible Alpha.
Maestri said sales in China fell less than 3 percent, excluding the effects of currency exchange rates. He also said he felt good about Apple’s performance in the country, given the weak economy.
Apple has begun offering discounts on its iPhones in China to compete with the much cheaper alternative smartphones offered by local rivals like Huawei. The company offered discounts of up to 2,300 yuan ($317) on select models in May.
AI push
Analysts are expecting a strong upgrade cycle for the iPhone 16 series, which is likely to launch in September. The company unveiled a suite of AI products and services it calls Apple Intelligence at its developer conference in June.
To use Apple Intelligence, a minimum iPhone 15 Pro is required, which may prompt consumers to upgrade their device.
While some analysts said some consumers have purchased the most expensive iPhone 15 devices to take advantage of upcoming Apple Intelligence features, CEO Tim Cook told investors Thursday it’s “too early to tell” whether that would lead to upgrades.
Apple’s AI features have come later than those of competitors, including Samsung Electronics, which introduced competing devices aimed at hosting AI chatbots.
Microsoft and Alphabet’s Google are also investing heavily in AI.
“The company’s future success depends on two factors: keeping AI development costs low and ensuring that new AI-driven features drive price-sensitive consumers to upgrade their devices,” said Emarketer analyst Jacob Bourne.
Apple began ramping up research and development spending last year. Cook said the company has spent more than $100 billion on research and development over the past five years.
Maestri told Reuters on Thursday that the company is maintaining “very good gross margins” despite the sometimes high costs associated with building and running AI applications.
Apple splits the costs of its AI infrastructure between its own data centers and those of other cloud providers with which it has contracts.
On the regulatory front, Apple is facing three investigations in the European Union over the Digital Markets Act, which requires big tech companies to level the playing field with rivals and give users more choice. The bloc’s antitrust regulator has accused Apple’s App Store of violating the DMA.
In the United States, the Justice Department accused Apple in March of monopolizing the smartphone market and raising prices.
According to data from LSEG, Apple’s quarterly earnings per share were $1.40, topping Wall Street estimates of $1.35.
Revenue from Apple’s services segment, which includes the App Store and Apple Music and TV products, rose 14.1 percent to $24.21 billion, beating analysts’ expectations of $24.01 billion, according to data from LSEG.
Mac sales rose 2.5 percent to $7.01 billion, compared with estimates of $7.02 billion, according to data from LSEG.
The company’s iPad revenue rose 23.7 percent to $7.16 billion, beating analysts’ expectations of $6.61 billion. That came after Apple launched a new AI-powered iPad Pro and a larger iPad Air in May, reviving demand for a product line that had languished in the past two years.
In the company’s wearables segment, which represents sales of Apple Watches and AirPods headphones, revenue fell 2.3 percent to $8.10 billion, compared with analysts’ estimates of $7.79 billion, according to data from LSEG.
Apple maintained its dividend at 25 cents. In the fiscal second quarter, Apple announced a $110 billion share buyback.
(Only the headline and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First print: Aug 02, 2024 | 07:38 AM IST