By Stephen Nellis
(Reuters) – Apple beat Wall Street’s quarterly profit estimates on Thursday, but iPhone sales and China revenue for the holiday quarter were weak due to stiff Chinese competition and a slow rollout of artificial intelligence features.
The company’s overall sales and profits were boosted by stronger-than-expected sales of iPads and Macs, where new chips helped persuade customers to upgrade.
The lack of AI selling points contributed to iPhone sales that dropped slightly to $69.14 billion, compared with the $71.03 billion that analysts were expecting, according to LSEG data. Greater China sales dropped to $18.51 billion, compared with $20.82 billion a year earlier and below the $21.33 billion that a Visible Alpha survey of five analysts expected.
Shares dipped 0.5% in choppy after-market trading.
Total sales of $124.30 billion for the fiscal first quarter ended Dec. 28 inched past Wall Street’s target of $124.12 billion, according to LSEG, while earnings per share of $2.40 comfortably beat the consensus target of $2.35.
The iPhone maker has positioned AI as a set of new capabilities and features such as drafting emails and transcribing phone calls, but the company is rolling the features out over time and has not yet secured a local partner in China to release them.
In an interview, Apple CEO Tim Cook said AI features, called Apple Intelligence, are driving sales of the company’s new devices.
“We saw that in markets where we have rolled out Apple Intelligence, the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available,” Cook said.
While Cook said Apple Intelligence is coming in new languages such as French and German in April, he said there is no timeline for when it will become available in China.
“We continue to work with the regulators and will release it as soon as we can,” Cook said.
Cook told Reuters that about half of Apple’s 11% decline in China revenues was attributable to changes in how much inventory the company’s resellers held.
“The decline Apple saw in China speaks both to growing interest in domestic brands that Chinese consumers are showing as well as the fact that the Apple Intelligence features aren’t there yet and, frankly, aren’t proving that compelling in the regions where they are available,” said Bob O’Donnell, president and chief analyst at TECHnalysis Research.
Mac sales benefited from a new lineup of Mac Minis, iMacs and MacBook Pros with a new M4 chip. Apple Intelligence features are more widely available on Apple’s Macs and iPads because their larger size means they have more powerful chips.
“The silicon makes it perfect for running AI workloads, and so I assume that that’s a very key compelling reason for people to upgrade,” Cook said.
Apple’s Mac and iPad sales hit $8.99 billion and $8.09 billion respectively, above estimates of $7.96 billion and $7.32 billion, according to LSEG data.
Apple said its services business, which includes iCloud storage and its streaming music and video services, hit $26.34 billion in sales, up 13.9% from the previous year and above estimates of $26.09 billion, according to LSEG data.
“While the company’s cautious approach to AI rollout has drawn criticism, robust services growth and ecosystem expansion are providing crucial momentum to help ease its continued iPhone struggles in China,” said Emarketer analyst Jacob Bourne.
The firm’s wearables segment, which includes the Apple Watch and AirPods lines, had $11.75 billion in sales, compared with analyst expectations of $12.01 billion, according to LSEG data.
(Reporting by Stephen Nellis in San Francisco; Editing by Rod Nickel)
