Apple rakes in staggering $23 BILLION profit as iPhone sales rise – but shares drop on weak holiday forecast and slumping revenue in China

Apple shares fell in extended trading Thursday after the company’s disappointing holiday earnings forecast overshadowed a strong quarterly profit of $23 billion and rising iPhone sales.

For the quarter ended September 30, iPhone sales rose 2.8 percent, contributing to total revenue of $89.50 billion, including nearly $1 billion more in services revenue than Wall Street expected.

Apple’s services segment, which includes Apple TV+ which recently inked a deal with global soccer superstar Lionel Messi, also saw revenue rise 16 percent to $22.31 billion, compared to analyst estimates of $21.35 billion.

But the results didn’t include the bulk of sales from Apple’s latest iPhone 15 models, and the company’s forecast that sales for the Christmas quarter would be roughly in line with last year sent shares plunging.

Apple shares, which are up 37 percent so far this year, fell 3.6 percent in after-hours trading after the company released the forecast.

On a conference call with analysts, Chief Financial Officer Luca Maestri said that revenue for the current quarter, when Apple typically has its largest sales of new iPhone models, will be similar to the previous year.

Wall Street expected revenue to rise 4.97% to $122.98 billion.

Apple faced potential headwinds last month after the United States International Trade Commission issued an order banning U.S. imports of certain Apple Watches over alleged patent infringement.

The order would take effect on December 26 unless it is overturned on appeal or Apple strikes a deal with the patent holder to avoid enforcement.

The Cupertino, California-based company is also facing an uneven economic recovery in China, a key market for Apple.

Last quarter, sales from China fell 2.5 percent, and CEO Tim Cook said the company’s new high-end handset models – the iPhone 15 Pro and Pro Max – are facing supply constraints.

“While we believe investors should breathe a sigh of relief as both revenue and profit exceeded expectations, the upside was small and we were concerned about weak sales from China,” said DA Davidson analyst Tom Forte.

Apple is facing stiffer competition in the smartphone market this year as Huawei Technologies returns to the field with new phones powered by Chinese chips after years of being virtually shut out of the market by US government trade restrictions.

Apple shares, which are up 37 percent so far this year, fell 3.6 percent in after-hours trading after the company released the forecast

Apple’s sales in China fell to $15.08 billion from $15.47 billion in the fourth quarter a year ago.

CEO Cook said that after taking into account exchange rates, Apple’s business in China grew year on year, driven by revenue from iPhone sales and services.

“In mainland China, we set a quarterly record for iPhone for the September quarter,” Cook told Reuters. “We had four of the five best-selling smartphones in urban China.”

Cook said Apple was “working hard to produce more” iPhone 15 Pro and Pro Max devices. “We believe we will reach a balance between supply and demand later this quarter,” he said.

Several global trends are also playing in Apple’s favor, with forecasters predicting that the smartphone market has bottomed out and could start to recover in 2024.

Longer term, investors are watching to see how Apple responds to the boom in generative artificial intelligence, where systems can follow directions in a human-like manner – an area that has attracted billions in spending from Microsoft and Alphabet’s Google.

Apple has said it is working on the technology and sees it as a way to improve a wide range of products.

For now, the iPhone remains Apple’s biggest seller. Device sales totaled $43.81 billion in the fourth quarter, in line with analyst expectations of $43.81 billion, according to LSEG data.

The PC market is also expected to perform better in the coming year. Earlier this week, Apple introduced new Mac machines.

Still, Mac sales fell by a third to $7.61 billion and iPad sales fell 10 percent to $6.44 billion, compared to expectations of $8.63 billion and $6.07 billion, respectively.

Sales in Apple’s wearables segment, which includes the Apple Watch and AirPods, fell 3% to $9.32 billion, below estimates of $9.43 billion, according to LSEG data.

Apple has suffered several quarters of declining sales of Macs and iPads, and the trend continued in the fourth quarter.