Apple Sales Fall as iPhone, China Businesses Remain Sluggish
Apple’s revenue declined for the fifth time in the past six quarters, dragged down by ailing iPhone sales and new competition from smartphone rivals in China.
The company authorized $110 billion in stock buybacks and signaled that the current quarter is likely to see revenue growth. Shares rose by more than 7% in after-hours trading.
For the quarter, Apple sales were $90.75 billion, down 4.3% from the prior year, and profit fell 2.2% to $23.6 billion. Both figures slightly beat the average of analyst expectations, according to FactSet.
Apple is struggling on a number of fronts. The company’s single most important business—the iPhone—has faced sluggish growth. In recent years, Apple has seen success by steering consumers toward its more expensive “Pro”-designated phones. Its latest iPhone 15 Pro Max was its most expensive ever with a starting price of $1,200. But this premium strategy isn’t propping up overall revenue as much as it did in the past.
For the first three months of the year, Samsung reclaimed the number one spot for worldwide smartphone market share, according to research firm IDC. Apple’s iPhone unit shipments slipped nearly 10% for the quarter over the previous year, while the total smartphone market expanded about 8% annually. Apple had briefly become the number one smartphone vendor near the end of 2023.
In the most recent quarter, iPhones sales declined 10.5% from the prior year to $46 billion, in line with analyst projections.
Some investors said they had expected declines in revenue in the quarter, but these results weren’t as bad as anticipated. “The main thing we’re looking for is some form of stability in the hardware and iPhone,” said Charles Rinehart, chief investment officer at Johnson Investment Counsel, an Apple shareholder. “The iPhone is down a bit, but it held on to their profitability.”
Challenging conditions in China, Apple’s third-largest market, have been an area of concern for many shareholders. Huawei, China’s homegrown champion, has been rapidly gaining ground since getting back into high-end phones. In China, Huawei’s smartphone sales rocketed up nearly 70% from the previous year, while Apple’s sales fell 19%, according to Counterpoint Research.
China revenue for the most recent quarter declined about 8% annually to $16.37 billion. Analysts had been anticipating around $15 billion in China sales, according to FactSet. For the quarter that ended in December, sales in China declined nearly 13% to $20.8 billion.
The Chinese government has been encouraging this trend. Late last year, the Chinese government imposed bans on the iPhone for government officials in the workplace.
“China is the most competitive market in the world and we feel confident about our position,” said Luca Maestri, Apple’s chief financial officer, in an interview.
Slowing Chinese demand has played a role in previous slumps for Apple. In the company’s fiscal 2016 and 2019, sales in its “Greater China” unit declined 17.41% and 15.91%, respectively.
“We did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Apple Chief Executive Tim Cook wrote to investors in early 2019.
Revenue from Apple’s services business, which includes App Store sales and subscription revenue from music, TV and other offerings, rose 14.2% to $23.87 billion.
Apple said it expects overall sales growth in the April-to-June quarter be in the “low single digits” percentage-wise.
Antitrust enforcers in the U.S. and Europe have also ramped up scrutiny of Apple’s competitive position in the market. In March, the Justice Department sued Apple in March, alleging the company maintains an illegal monopoly over the U.S. smartphone market. In Europe, new laws threaten to tear down Apple’s closed-app ecosystem, and the regional antitrust regulator has opened investigations into Apple’s compliance with the new law. Apple plans to defend itself against these regulatory efforts.
Apple’s only new device in years, the Vision Pro, is many years from contributing meaningfully to company sales. The company in February canceled its electric-vehicle project, laying off 614 workers. Some employees were shifted toward work on generative artificial intelligence, technology popularized by OpenAI’s ChatGPT.
With investors, Cook has promised to unveil new AI innovations within the company’s ecosystem, which analysts believe will happen at its annual June developers conference. “We also see incredible breakthrough potential for generative AI, which is why we’re currently investing significantly in this area,” Cook said at the company’s recent annual shareholder meeting.
In addition to Apple’s own AI developments, the company is also potentially looking at external partnerships with Google and OpenAI.
Artificial intelligence has been fueling tech earnings of late. Last week, shares of Microsoft and Google-parent Alphabet jumped as the companies reported that they were spending billions to meet the growing demand for artificial intelligence in their products.
Meta Platforms, on the other hand, underwent its worst day for its stock in 18 months last week after the company announced a $10 billion in capital-expenditure projections for 2024 as it builds out its AI capabilities.
Earlier this year, Microsoft took the crown from Apple as the world’s largest company by market capitalization, and its lead has grown in the months since. Microsoft’s stock is trading up 5% from the beginning of the year, while Apple’s stock is down 10% in the same period.
Investors are hopeful that these AI announcements will lead to renewed iPhones sales after a disappointing sales cycle with the latest iPhone 15.
“The last three iPhones have not been exciting,” said Hal Eddins, vice president at Apple-investor Capital Investment Companies. “But hopefully with the iPhone 16 they roll out new AI features and it will be off to the races.”
Write to Aaron Tilley at [email protected]