Apple’s latest iPhone, enhanced with artificial intelligence features, performed well in its initial launch period, surpassing Wall Street’s quarterly sales estimates. However, a cautious revenue forecast has raised concerns about whether this momentum can be sustained through the holiday shopping season.
Sales in China dipped during the fourth quarter, prompting worries among analysts and investors. This factor contributed to a 1.4% decline in Apple’s shares during after-hours trading, despite the company reporting significant overall profit and revenue during that time.
During a conference call with analysts, Chief Financial Officer Luca Maestri stated that Apple anticipates overall revenue growth in the range of “low to mid single digits” for its fiscal first quarter ending in December. This outlook fell short of analysts’ predictions, which estimated revenue growth of 6.65%, reaching approximately $127.53 billion for the quarter, according to LSEG data.
Despite concerns, Apple projected double-digit growth in its services sector for the upcoming first quarter. This expectation led some analysts to inquire if overall hardware sales might decline.
Executives did not directly address this question or provide insight into the iPhone’s performance, particularly in China, where the new AI features have yet to be released. Apple has not disclosed a timeline for their availability.
Prior to the analyst call, Maxim Group analyst Tom Forte indicated that the decline in shares could be attributed to the weaker-than-expected fourth-quarter sales in China.
“We see the potential for sustained weakness in China,” Forte stated.
Apple reported total fourth-quarter sales of $94.93 billion, exceeding Wall Street’s estimates of $94.58 billion, according to LSEG data. Earnings, excluding a significant one-time tax charge in the European Union, were $1.64 per share, surpassing the analyst expectation of $1.60 per share.
Sales of the iPhone, Apple’s flagship product, rose 5.5% to $46.22 billion in the fourth quarter, outperforming analyst expectations of $45.47 billion. However, sales in other product categories fell short of projections.
The fourth quarter, which ended on September 28, included only a few days of sales from the new iPhone 16 series, which launched on September 20. Apple CEO Tim Cook reported that iPhone 16 sales were growing at a faster rate than those of the iPhone 15 did during the same period last year.
Cook noted that Apple customers are adopting the latest version of the iPhone operating system—featuring Apple Intelligence—at double the rate seen a year earlier. “We’ve had great feedback from customers and developers already,” Cook said. “We’re off to a good start.”
AI Strategy
The success of Apple’s artificial intelligence strategy, unveiled earlier this year, is closely linked to the performance of its new phone models.
Instead of launching AI as a separate application, Apple has integrated Apple Intelligence into its latest operating systems, introducing features such as the ability to refine emails for a more professional tone. These enhancements are primarily available on iPhone 16 models equipped with more advanced chips, though the pro versions of the iPhone 15 are also compatible with the AI capabilities.
Some AI features were launched this week, while others have faced delays. This has led analysts to question whether consumers will be more reluctant to upgrade their devices this year amid the staggered rollout of key software features.
While competitors Microsoft and Meta have forecast increased spending on their AI initiatives, Apple reported capital expenditures—an indicator of investment in property and equipment—rising by $2.91 billion to $9.45 billion in the last quarter.
Apple’s lower spending levels can be partly attributed to its use of third-party data centers for certain AI tasks. While some elements of Apple Intelligence depend on the company’s own data centers, the features are powered by in-house chips.
“There would be some (financial) benefit to us by using our own silicon, obviously, but that’s not the reason we’re doing it. We’re doing it because we can provide the same standard of privacy and security that we can provide on-device,” Cook stated.
In terms of service revenue, which includes offerings like iCloud and Apple Music, Apple reported $24.97 billion, slightly below the $25.28 billion expected by analysts. Mac and iPad sales were recorded at $7.74 billion and $6.95 billion, respectively, also missing forecasts of $7.82 billion and $7.09 billion, according to LSEG data.
Apple’s home and wearables segment, encompassing products like the Apple Watch and AirPods, saw revenue decline to $9.04 billion, compared to expected sales of $9.2 billion, according to LSEG.
Earnings per share were 97 cents, incorporating a hefty charge related to a one-time multi-billion-euro tax payment in Europe.
© Thomson Reuters 2024
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
