SAN FRANCISCO — Following the introduction of artificial intelligence features for iPhones last year, Apple’s stock experienced a significant increase, fueled by hopes that these innovations would revitalize a stagnant business. However, a surge in sales has yet to materialize.
On Thursday, the technology leader reported iPhone sales of $69.14 billion for its latest quarter, reflecting a 0.8% decline compared to the previous year and falling 3.5% short of the record sales achieved in early 2022. Nevertheless, the company saw growth in its apps and services segment, including Apple Music and Apple TV+, which helped mitigate the lackluster performance of its iPhone division.
Apple's overall quarterly revenue rose by 4% to $124.3 billion for the three-month period ending in December. Profit increased by 7% to $36.33 billion, recovering from the prior quarter when the company incurred a substantial fine from European regulators.
While the results slightly missed Wall Street's expectations of $124.38 billion in sales, they surpassed the profit forecast of $35.62 billion. The company anticipates revenue growth in the upcoming quarter, which concludes in March. Following this positive sales outlook, shares climbed 3.5% in after-hours trading.
Despite a strong marketing push for its new AI technology, Apple launched an iPhone in September that lacked its key feature: an AI system known as Apple Intelligence. The AI capabilities were introduced about a month later in the United States and subsequently rolled out to other English-speaking nations.
Apple has not yet launched Apple Intelligence in China, its second-largest market, which has diminished the iPhone's attractiveness in the region. According to Counterpoint Research, a market analysis firm, Apple's share of smartphone sales in China decreased by 2.4 percentage points last year, landing at 15.5%. The company reported an 11% decline in sales in China, totaling $18.51 billion, and plans to expand its AI services to more languages by April.
Tim Cook, Apple's CEO, noted during an analyst call that markets where Apple Intelligence has been introduced have shown better year-over-year performance compared to those where it has not.
In regions where Apple Intelligence is operational, some features have not met customer expectations. Recently, the company announced it would deactivate its AI system for aggregating and summarizing news notifications due to inaccuracies in representing media reports.
David Wagner, head of equity at Aptus Capital Advisors in Alabama, remarked, “There was significant optimism surrounding the iPhone 16, but now it seems like the situation has drastically changed. The adoption of AI has been slower than anticipated.”
Alongside efforts to rejuvenate its iPhone sales, Apple is also facing potential new supply chain challenges. Former President Donald Trump has indicated the possibility of imposing additional tariffs on imports from China, where a majority of iPhones are produced, as well as on products from countries like Vietnam, where Apple has relocated some manufacturing during his first term. Such tariffs could impact Apple's profit margins or compel the company to increase prices.
Over the years, Cook has developed a personal rapport with Trump. He contributed $1 million to Trump's inauguration fund and was seated behind Trump during the inauguration, alongside other prominent tech figures such as Mark Zuckerberg and Jeff Bezos.
When analysts inquired about the potential implications of the new administration for the company, Cook responded, “We are monitoring the situation and don’t have anything more to add.”
Apple's services segment, which encompasses app sales, Apple TV+, and Apple Pay, remains the company's top-performing area. The firm benefits from a share of revenue generated from over a billion subscriptions sold on iPhones and iPads, with service sales increasing by 14% to reach $26.34 billion in the last quarter.
A significant portion of service revenue is derived from Google, which pays to be the default search engine on Apple devices. A federal judge ruled last year that Google holds a monopoly due to these payments, and the Justice Department has requested the court to address this issue by mandating a cessation of such practices. Apple, eager to maintain the $20 billion it receives annually from Google, attempted to intervene in the case but was denied.
Apple announced an increase in sales for two of its major products, the iPad and Mac, while experiencing a decline in sales for its wearables, including the Apple Watch and AirPods. Overall, the company's product revenue grew by 1.6%, reaching $97.96 billion.
