Apple hits Wall Street’s best targets on strong iPhone sales, shares fall amid forecasts

Apple’s AI-enhanced iPhone got off to a strong start, helping beat quarterly sales ahead of Wall Street expectations, but questions about whether adoption will continue at a rapid pace were underscored by a modest earnings forecast.

Weaker sales in China in the fourth quarter also worried some analysts and investors, sending shares down about 2 percent in after-hours trading despite surprisingly strong overall profit and revenue in the fourth quarter.

“We expect the company’s overall revenue to grow in the low to mid-single digits year over year in the December quarter,” CFO Luca Maestri said on a call with analysts, referring to Apple’s current first quarter. Analysts expected first-quarter revenue to rise 6.65% to $127.53 billion, according to LSEG.

iPhone sales helped stabilize Apple’s sales in China in the fourth quarter, which fell less than 1 percent overall to US$15.03 billion. However, analysts expected sales in China to increase by US$15.78 billion, according to Visible Alpha.

Before management’s call with analysts, Tom Forte, an analyst at Maxim Group, attributed the drop in Apple shares to sales in China, which were below expectations.

“We see the potential for continued weakness in China,” he said. Apple said fourth-quarter sales were US$94.93 billion, beating Wall Street’s target of US$94.58 billion, according to LSEG.

Earnings of $1.64 per share, excluding huge one-time tax charges in the European Union, beat analysts’ expectations of $1.60 per share.

Sales of Apple’s iPhone, the company’s flagship product, rose 5.5% to $46.22 billion in the fourth quarter, compared with analysts’ estimates of $45.47 billion. Other product lines did not live up to expectations.

Apple’s fourth quarter ended on September 28, meaning it reflects just a few days of sales of the iPhone 16 series, which went on sale on September 20. Apple CEO Tim Cook told Reuters that iPhone 16 sales grew faster than iPhone 15 sales a year earlier. both phones will sell for the same number of days in the fourth quarter.

Cook also said Apple customers were downloading a new version of the iPhone operating system with so-called Apple Intelligence features twice as fast as a year earlier.

“We’ve already received great feedback from customers and developers,” Cook said. “We’re off to a good start.”

Artificial Intelligence Strategy

The implementation of Apple’s artificial intelligence strategy, which the company announced this year, depends on how well its new phones sell.

Rather than embedding AI into a separate app or service, Apple has integrated Apple Intelligence into its latest operating systems in the form of new features such as the ability to rewrite an email in a more professional tone.

These features will mostly be available on iPhone 16 models, which have more powerful computing chips, although both pro versions of the iPhone 15 work with Apple Intelligence.

While some of these Apple Intelligence features arrived this week, others have been delayed, leading some Wall Street analysts to wonder whether consumers will be slower to upgrade their devices this year while the software’s flagship features gradually fade away. .

Apple’s rivals Microsoft and Meta said this week they expect spending to continue to increase to support their artificial intelligence strategies. Apple said payments for real estate and equipment, a measure of its capital expenditures, rose US$2.91 billion from the previous quarter to US$9.45 billion.

Apple’s cost reduction is partly due to its use of third-party data centers for some artificial intelligence work. Some aspects of Apple Intelligence do rely on Apple’s own data centers, but the company uses its own chips to power those functions.

“Obviously, using our own silicon will bring us some (financial) benefit, but that’s not the reason we’re doing it. We do this because we can provide the same standard of privacy and security that we can provide on a device,” Cook said.

Sales in Apple’s services business, including iCloud storage and Apple Music, were $24.97 billion, compared with analysts’ expectations of $25.28 billion, LSEG said.

Mac and iPad sales totaled $7.74 billion and $6.95 billion, respectively, compared with estimates of $7.82 billion and $7.09 billion, according to LSEG.

Sales in Apple’s home products and wearables business, including Apple Watch and AirPods, fell to $9.04 billion, compared with estimates of $9.2 billion, according to LSEG.

Earnings per share were 97 cents, including costs related to a one-time European tax charge of several billion euros. REUTERS