Apple forecasted a drop in iPhone sales and overall revenue of $6 billion lower than expectations on Thursday, as its China business struggled.
Revenue of $6 billion
This overshadowed overall fiscal first-quarter sales and profit, which exceeded analysts’ expectations thanks to iPhone growth, sending Apple shares down 3% in after-hours trading.
The results confirmed some analysts’ concerns that the company’s signature product is losing ground in the key Asian market, where consumers are purchasing foldable phones as well as Huawei phones powered by a Chinese chip.
“China is the most competitive smartphone market in the world, and that hasn’t changed,” Apple CEO Tim Cook said in an interview.
He stated that iPhone sales in the December quarter were down “mid-single digits” when currency exchange rates were taken into account.
“In China, Apple is facing more competitive challenges not only because of Huawei but also because of foldables, which is a very popular and fast-growing segment in China – and as we all know, Apple does not have a foldable device – yet,” said Nabila Popal, an analyst at IDC.
According to LSEG data, Apple’s December quarter sales in China totaled $20.82 billion, falling short of analyst expectations of $23.53 billion.
Apple Chief Financial Officer
Chief Financial Officer Luca Maestri said in a conference call that revenue in the current quarter will be at least $5 billion lower than a year ago, when the company sold iPhones quickly to replenish inventories depleted by COVID-related factory shutdowns.
Revenue forecast of $90 billion
Maestri’s comments suggested a revenue forecast of about $90 billion and iPhone sales of around $46 billion for the fiscal second quarter, which ends in March.
Wall Street expected revenue of nearly $96 billion and iPhone sales of $50 billion. In the 2023 quarter, they totaled $51 billion.
This would be the company’s worst fiscal second quarter of iPhone sales since the widespread COVID lockdowns in March 2020.
“The drag would be China – and it has everything to do with their seasonality, and the elongated replacement cycle,” said Ben Bajarin, CEO of research firm Creative Strategies. “Regardless of what happens, (a drop in) year-over-year iPhone sales would be more of a concern than a quarter.”
Fiscal first quarter sales of $119.58 billion and profit of $2.18 per share exceeded analyst expectations of $117.91 billion and $2.10 per share, respectively.
Sales of iPhones reached $69.70 billion in the quarter, up 6% from analyst expectations of $67.82 billion, thanks to the iPhone 15 lineup.
Which includes devices capable of capturing three-dimensional video for the Vision Pro headset, which will be released this week. Apple’s total installed base of devices has reached 2.2 billion, up from 2 billion a year ago.
“We had particularly strong double-digit growth on iPhone in emerging markets outside of China,” Apple CEO Tim Cook said.
‘Huge Opportunity’
Whereas Apple’s results disappointed, two other tech heavyweights, Amazon.com (AMZN.O) and Facebook owner Meta Platforms (META.O), reported quarterly results on Thursday, resulting in share price increases.
In January, Microsoft surpassed Apple as the world’s most valuable company, with investors viewing Apple as falling behind in the AI race among tech heavyweights.
China and Japan totaled $10.16 billion
That has rarely discussed generative AI, but Cook stated on Thursday’s conference call that it was a “huge opportunity” with “a lot of work going on internally,” but that he did not intend to discuss it publicly until later this year.
The sales in Asia outside of China and Japan totaled $10.16 billion, exceeding analyst expectations. Cook claimed that iPhone sales had reached an all-time high in South Korea, home to longtime rival Samsung Electronics.
Apple’s App Store
Services business, which includes the Apple TV+ service as well as music, iCloud storage, and the App Store, grew the most during the fiscal first quarter, rising 11% to $23.12 billion in sales, slightly lower than analyst expectations.
The App Store also faces a challenge in Europe, where a new law that goes into effect in March will allow developers to avoid paying Apple commissions and install alternative app stores on iPhones.
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