Apple (AAPL.O) forecasted a sales dip into the current quarter on Thursday, sending shares down despite exceeding Wall Street sales and earnings goals in the fiscal third quarter.
Apple’s stock plummeted around 2% after the firm forecasted a fourth quarter of falling sales. Strength in services fueled the profit beat in the most recent quarter, but weaker-than-expected sales of Apple’s most recognized item, the iPhone, disappointed investors. Executives predicted that iPhone sales will increase in the fourth quarter, but did not specify how much.
Apple is in a difficult situation, with its entrenched iPhone fighting for market share against Android rivals in a mature market, while its next big product – the Vision Pro mixed-reality headset unveiled in June – is still not in consumers’ hands.
Apple’s fiscal third-quarter sales dipped 1.4% to $81.8 billion, while earnings per share increased 5% to $1.26. According to Refinitiv IBES statistics, this surpassed analyst projections of $81.69 billion and $1.19 per share. Weaker iPhone sales were offset by robust sales in the services area, which includes Apple TV+, and sales in China, which increased 8% year over year.
Apple Chief Financial Officer Luca Maestri stated that the company expects year-over-year revenue growth in its fiscal fourth quarter ending in September, comparable to the decline revealed on Thursday. According to Refinitiv statistics, that sales prediction falls short of analysts’ expectations of essentially flat fiscal fourth-quarter sales of $90.19 billion.
“There is real concern about when volume picks up and what the horizon is for iPhone sales growth,” said Daniel Newman, CEO and primary analyst at research firm Futurum Group.
According to Refinitiv statistics, Apple forecasted a gross profit margin of 44% to 45% in the September quarter, exceeding expert projections of 43.4%. While Apple anticipates growth in its service category, which includes Apple TV+, iPad and Mac sales will fall by “double digits,” according to Maestri on the call.
Apple’s R&D spending has also reached $22.61 billion for the fiscal year so far, roughly $3.12 billion more than at this point last year.
In an interview with Reuters, Apple Chief Executive Officer Tim Cook stated that the increased R&D investment was driven in part by work on generative artificial intelligence, the same sector that is driving spending at other large technology companies.
“For years, we’ve been conducting research on a wide range of AI technologies, including generative AI.” “With these technologies, we will continue to invest, innovate, and responsibly advance our products to help enrich people’s lives,” Cook added. “Obviously, we’re investing heavily, and it’s reflected in the R&D spending you’re looking at.”
Meanwhile, Apple appeared to surpass what had been China’s lowest smartphone market in over a decade. According to Counterpoint Research, overall smartphone sales in China fell 8% in the calendar second quarter to their lowest levels since 2014. Cook, on the other hand, told Reuters that Apple’s iPhone sales in China increased by “double digits” and that sales were also strong in other areas in China.
This helped Apple increase revenue in its Greater China region to $15.76 billion, up from $14.60 billion in the same quarter last year.
“This was really done by attracting a quarterly record of switchers to the iPhone, as well as having a strong upgrader activity,” Cook explained. “We also set quarterly records in China for both wearables, home and accessories, and services.”
According to Refinitiv statistics, Apple reported iPhone sales of $39.67 billion, which fell short of analyst projections of $39.91 billion. Cook stated that the installed base of iPhones had reached a new high, but provided no figures.
“The company continues to face headwinds caused by waning growth in the smartphone market,” said Jeremy Goldman, an analyst at Insider Intelligence. “All eyes are now on its quarterly earnings call for any potential Vision Pro or AI-related announcements that could further push the boundaries of their business model.”
According to Refinitiv statistics, Apple’s services business, which includes its Apple TV+ service, which has announced an agreement to carry Major League Soccer, earned $21.21 billion in sales, compared to analyst projections of $20.76 billion.
Cook stated that Apple now has 1 billion platform members, which includes both Apple services and third-party apps, up from 975 million a quarter ago.
According to Refinitiv statistics, the company’s wearables segment, which includes the Apple Watch and AirPods, had revenue of $8.28 billion, compared to analyst projections of $8.39 billion.
According to Refinitiv data, Mac and iPad sales were $6.84 billion and $5.79 billion, respectively, compared to analyst projections of $6.62 billion and $6.41 billion.
Almost half of Mac buyers during the quarter were new to the product, and we continue to see strong upgrader activity to Apple Silicon.
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