On Thursday, Apple (NASDAQ:AAPL) revealed its forecast of a continuing sales slump in the current quarter, causing shares to drop, even though the company managed to surpass Wall Street’s sales and profit expectations during the fiscal third quarter.
Despite beating profit expectations thanks to the strength of its services segment, Apple stock declined approximately 2% due to concerns about the potential fourth consecutive quarter of declining sales. Investors were underwhelmed by weaker-than-expected iPhone sales, which is the company’s flagship device. Although Apple executives mentioned that iPhone sales are expected to improve in the fourth quarter, they did not provide specific details on the magnitude of the improvement.
Apple (NASDAQ:AAPL) faces a delicate situation as its entrenched iPhone competes for market share against Android rivals in a mature market, while its much-anticipated product, the Vision Pro mixed-reality headset, announced in June, is yet to be released to consumers.
For the fiscal third quarter that ended on July 1, Apple (NASDAQ:AAPL) reported a 1.4% decline in sales to $81.8 billion, with earnings per share rising by 5% to $1.26. Apple forecasted figures surpassed analysts’ expectations of $81.69 billion in sales and $1.19 per share, according to Refinitiv’s IBES data. The decline in iPhone sales was somewhat offset by strong sales in the services segment, including Apple TV+, and by an 8% year-on-year growth in sales in China.
Looking ahead to the fiscal fourth quarter ending in September, Apple’s Chief Financial Officer, Luca Maestri, stated that the company expects a revenue performance similar to the decline reported for the third quarter. However, this sales forecast falls below analyst expectations, which had anticipated roughly flat sales of $90.19 billion.
Daniel Newman, the CEO and principal analyst at research firm Futurum Group, expressed concern about the timing and extent of iPhone sales growth in the future.
Apple projected a gross profit margin of 44% to 45% for the September quarter, surpassing analyst expectations of 43.4%. Although the company expects growth in its services segment, which includes Apple TV+, iPad, and Mac sales, to decrease by “double digits,” it did not provide further details on this prediction.
The company’s research and development spending has increased to $22.61 billion for the fiscal year so far, which is approximately $3.12 billion higher than the previous year. Apple’s CEO, Tim Cook, revealed that the increased R&D spending is attributed, in part, to their work on generative artificial intelligence, a field that is also seeing substantial investment by other major technology companies.
Despite China’s overall smartphone market experiencing an 8% decline in sales during the second quarter, Apple appeared to outperform in the region. The company’s iPhone sales in China grew by “double digits,” according to Cook, and sales were strong in other segments as well. Apple’s China region reported sales of $15.76 billion, up from $14.60 billion in the same quarter last year.
Apple’s services segment, which includes Apple TV+ and recently secured a deal to carry Major League Soccer, generated $21.21 billion in revenue, surpassing analyst estimates of $20.76 billion. Cook revealed that Apple’s platform now has 1 billion subscribers, up from 975 million in the previous quarter.
The wearables business, which includes the Apple Watch and AirPods, recorded revenue of $8.28 billion, slightly below analyst estimates of $8.39 billion. Mac and iPad sales were $6.84B and $5.79B, respectively, exceeding analyst estimates of $6.62 billion and $6.41B.
Despite facing challenges from a slowing smartphone market, Apple’s (NASDAQ:AAPL) focus on AI research and development and its expanding services segment offers potential for future growth and innovation. Investors remain attentive to any announcements related to the Vision Pro mixed-reality headset and other AI-related initiatives that could shape the company’s business model in the coming quarters.
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Author Faith Yakubu 
