Despite Surpassing Sales Projections, Apple Braces for Ongoing Dip in Sales, Stocks Slip by 2%
It was a stormy Thursday for Apple as they braced for an enduring slide in sales, sending stocks on a 2% dive, even though their fiscal third quarter figures managed to outshine Wall Street’s estimates.
The tech giant’s shares (NASDAQ:AAPL) took a tumble post the company’s forecast of what could potentially be the fourth successive quarter of waning sales. Despite the power-packed performance of its services arm, a lukewarm response to the iPhone – Apple’s crown jewel – did little to raise investors’ spirits. However, there’s a silver lining – top brass foresee a healthier fourth quarter for iPhone sales, without going into specifics.
Being in a tight spot, Apple’s flagship iPhone is locked in a fierce battle with Android counterparts in a plateaued market, even as consumers eagerly wait for the much-hyped Vision Pro mixed-reality headset announced earlier in June.
The tech behemoth’s fiscal third-quarter sales, ending on July 1, saw a slight dip of 1.4% to $81.8 billion, whereas earnings per share saw a small increase of 5% to $1.26. These figures were just enough to outdo analyst predictions of $81.69 billion and $1.19 per share, respectively, according to Refinitiv’s IBES data. A bump in services sales, coupled with a robust 8% year-on-year growth in Chinese sales, provided some counterbalance to sluggish iPhone sales.
In his statement, Apple’s CFO Luca Maestri expects a drop in the company’s revenue for the fiscal fourth quarter, mirroring Thursday’s report, which does not bode well with analysts’ expectation of roughly flat sales of $90.19 billion.
According to Daniel Newman, Futurum Group’s CEO and principal analyst, “The million-dollar question remains – when will iPhone sales volumes pick up steam and what lies in store for future growth?”
Despite looming concerns, Apple expects a healthy gross profit margin of 44% to 45% in the September quarter, slightly exceeding analysts’ projections of 43.4%, based on Refinitiv data. While Apple predicts a spurt in its services segment, iPad and Mac sales might witness a “double-digit” decline, as per Maestri.
Noteworthy is Apple’s R&D expenditure, hitting $22.61 billion for the current fiscal year – a whopping $3.12 billion hike compared to the same period last year.
In an exclusive chat with Reuters, Apple CEO Tim Cook attributes this rise in R&D expenditure to advancements in generative AI, a trend also visible among other tech heavyweights. “We’ve got our fingers in many AI pies, including generative AI. And we’ll keep on pushing the envelope, innovating responsibly and enriching lives with our products. No wonder our R&D investment is turning heads,” Cook commented.
CHINA STRENGTH
Apple seems to be bucking the trend in China, the weakest smartphone market in almost a decade. As per Counterpoint Research, smartphone sales plummeted 8% in the second quarter to their lowest since 2014. On the flip side, Cook reports a “double-digit” growth in Apple’s iPhone sales and robust sales in other segments in China.
This aided Apple in boosting its sales in the greater China region to $15.76 billion, up from $14.60 billion in the same quarter last year.
Cook adds, “Our strategy of wooing switchers to the iPhone in record numbers and robust upgrading activity, alongside setting quarterly records in both wearables, home and accessories, and services in China, has truly paid off.”
Meanwhile, Apple’s iPhone sales lagged at $39.67 billion, a bit short of analysts’ prediction of $39.91 billion, as per Refinitiv data. Cook also mentioned a new high in the number of installed iPhones, without specifying the exact figures.
Jeremy Goldman, an analyst at Insider Intelligence, warns, “Apple’s path ahead is fraught with challenges owing to the stagnant growth in the smartphone market. The industry is on the edge of their seats for potential Vision Pro or AI-related announcements in their earnings call that could potentially disrupt their business model.”
In more positive news, Apple’s services segment, including Apple TV+ which recently bagged a deal to broadcast Major League Soccer, raked in $21.21 billion in revenue, surpassing analysts’ estimates of $20.76 billion, based on Refinitiv data.
Cook also revealed an impressive figure of 1 billion subscribers across their platform, including Apple services and third-party apps, a significant rise from 975 million just a quarter ago.
Apple’s wearables segment, featuring the Apple Watch and AirPods, reported revenue of $8.28 billion, slightly shy of analysts’ estimates of $8.39 billion, according to Refinitiv data.
Finally, Mac and iPad sales came in at $6.84 billion and $5.79 billion, respectively, surpassing and lagging behind analyst estimates of $6.62 billion and $6.41 billion, respectively, as per Refinitiv data.
“Almost half of the new Mac customers in this quarter were first-timers, and we continue to see strong traction for Apple Silicon,” Cook said, wrapping up the interview with Reuters.
