Apple's Strong Performance Despite a 10% iPhone Sales Drop

Apple announced on Thursday that iPhone sales decreased 10% for the second fiscal quarter. This means Apple earned $45.96 billion compared to $51.33 billion in the same period last year. One reason for this drop is an 8% decrease in sales in China.

One factor contributing to this slowdown could be Apple’s slower adoption of artificial intelligence (AI) compared to competitors like Google and Microsoft. Consumers might be waiting to see what Apple announces about AI, which is expected to happen, possibly at the Worldwide Developers Conference (WWDC) in June. However, the next iPhone model, the iPhone 16, will likely be released in the autumn.

CEO Tim Cook explained on an earnings call, “Keep in mind as we described on the last call in the March quarter a year ago, we were able to replenish iPhone channel inventory and fulfill significant pent-up demand from the December quarter COVID-related supply disruptions on the iPhone 14 pro and 14 Pro Max,”

He also said, “We estimate this one-time impact is $5 billion to the March quarter revenue last year. If we remove this from last year’s results, our March quarter total company revenue this year would have grown.”

Read More: Apple Acquires AI Startup Specializing in Supervising Manufacturing Components

Apple exceeded Wall Street’s expectations despite declining hardware sales, leading to a more than 6% rise in stock value after trading hours. This boost was driven by growth in services revenue and a significant $110 billion stock buyback, which is higher than last year’s $90 billion purchase.

Apple’s services, which include products like iCloud, Apple TV+, and Apple Music, saw a 14% increase in revenue for the year. The company had foreseen a potential slowdown in hardware sales and has strategically shifted focus toward subscription services to compensate for some of that decline.

“We expect our services business to grow double digits at a rate similar to the growth we reported for the first half of the fiscal year,” CFO Luca Maestri noted on the call. He added that “iPad should grow double digits.”

Next week, the company is expected to unveil two new iPads at a standalone event. The absence of updates to the tablet line since 2022 likely contributed to a decrease in sales from $6.67 billion to $5.56 billion compared to the previous year. During Tuesday’s event, Apple is also expected to introduce the M4 chip, the latest addition to its Apple Silicon lineup. 

However, the company’s progress in chip technology will soon face competition from Microsoft, whose advancements in this area are expected to be revealed at its Build conference in late May. Additionally, more hardware announcements will likely be made at Apple’s annual Worldwide Developers Conference in June.

Apple doesn’t provide specific sales figures for the Vision Pro; instead, it includes them in the Wearables, Home, and Accessories category, which also encompasses products like the Apple Watch, AirPods, and HomePods. Despite this, most reports suggest that the Vision Pro headset sales fell below expectations. Nonetheless, the company attempted to maintain a positive outlook on the headset’s release.

“During the quarter, we were thrilled to launch Apple Vision Pro and to show the world the potential that spatial computing unlocks,” Cook noted in a release. “We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month.”

In February, Cook tried to raise concerns about Apple lagging behind Google and Microsoft by mentioning that more details on its generative AI initiatives would be provided later this year.” Although the topic will be important at the upcoming iPad event, Apple might reserve major announcements for WWDC in June. Meanwhile, reports suggest Apple wants to incorporate OpenAI’s ChatGPT and Google’s Gemini into future iPhone models.

In response to a question on the subject during tonight’s call, Cook said, “I don’t want to get in front of our announcements, obviously. I would just say that we see generative AI is a very key opportunity across our products. And we believe that we have advantages that set us apart there. And so we’ll be talking more about it as we go through the weeks ahead.”