Apple Reassures with Revenue Forecast, China Challenges Linger
Apple Inc. projected a promising revenue outlook for the current quarter, boosting its market valuation. Despite declining holiday sales in China and the iPhone, the company's financial performance met expectations.
Revenue Forecast and Market Reaction
Apple anticipates revenue growth in the low- to mid-single digits for the current quarter. This projection aligns with analysts' estimates of approximately 5%. The forecast eased investor concerns stemming from the company's mixed quarterly report. Apple's shares surged over 3% in after-hours trading, reversing an earlier decline.
China and iPhone Sales
Revenue from China plummeted 11% to $18.5 billion in the fiscal first quarter. Analysts had predicted a gain to $21.6 billion. iPhone sales also experienced a modest decline of less than 1% to $69.1 billion, against Wall Street projections of $71 billion.
CEO Tim Cook attributed over half of the China decline to inventory issues. Apple Intelligence, the company's AI platform, did not significantly boost iPhone sales. However, the latest iPhone 16 performed better in markets where AI features were available.
Wearables and Apple Intelligence
Apple's wearables business underperformed during the holiday season. Analyst Jacob Bourne emphasized the need for accelerated Apple Intelligence deployment and increased aggression in areas like smart glasses development. The company faces competition from rivals with more advanced AI offerings and smart glasses.
Changing Guard and Financial Performance
This report marked a transition for Apple, being the first under new CFO Kevan Parekh. Total revenue increased by 4% to $124.3 billion, driven by growth in services revenue. Net income reached $2.40 per share, exceeding estimates of $2.35, setting a new record.
Product Updates and Services
Apple plans to introduce a refreshed iPhone lineup in the coming months, including a replacement for the low-end SE model and a thinner iPhone later in the year. The services division, encompassing the App Store and Apple Music, performed strongly, generating a record $26.3 billion and growing by 14%.
The Mac and iPad lineups surpassed expectations. Mac sales reached $8.99 billion, beating estimates of $7.94 billion. Apple plans to release a new MacBook Air and desktop computers in the upcoming year. iPad revenue surged 15% to $8.09 billion.
Challenges and Opportunities
Apple faces ongoing challenges in China and internationally. The company's struggles in China result partly from the absence of Apple Intelligence and fierce competition from local brands. Apple is seeking an AI partner to facilitate the platform's launch in China.
In the EU, Apple faces scrutiny over the App Store's dominance. The company may face fines unless it complies with regulators and adjusts policies related to subscription payments, potentially impacting services revenue.
Locally, Apple anticipates the possibility of tariffs during the second Trump administration. Cook stated that the company is closely monitoring the situation.
Artificial intelligence remains a significant challenge for Apple. Its AI offerings have encountered bugs and pale in comparison to competitors like OpenAI and DeepSeek. Cook acknowledged the need for innovation and highlighted Apple's strengths in integrating silicon and software.