Apple profit climbs but sales miss expectations

Apple logged $36.3 billion in profit in what chief executive Tim Cook called its “best quarter ever.”

Revenue growth was powered by Apple’s service and digital content unit, with iPhone sales slipping in markets like mainland China where they tallied $18.5 billion.

Overall iPhone sales in the quarter were $69.1 billion, about a half-billion less than it took in for handsets in the same period a year earlier, according to an earnings release.

“Our record revenue and strong operating margins drove (earnings per share) to a new all-time record with double-digit growth,” said Apple chief financial officer Kevan Parekh.

“We are also pleased that our installed base of active devices has reached a new all-time high across all products and geographic segments.”

In the quarter, Apple’s services segment — which includes Apple Music, iCloud, the App Store, and Apple TV+ — reported revenue of $26.3 billion, compared to $23.1 billion in the same period a year earlier.

Apple shares slipped before rising nearly three percent to $244.67 in after-market trades.

The Americas remained Apple’s largest market with $56.2 billion in revenue, while Europe showed strong growth at $33.9 billion.

“On the Apple intelligence side, we have not rolled out in China,” Cook said on an earnings call.

“We did see better results in the markets that we had rolled Apple Intelligence out in than markets we hadn’t; and, of course, it’s the most competitive market in the world.”

Investors are eyeing demand for new iPhones with artificial intelligence features, especially after Apple stumbled with the technology.

Apple Intelligence is a new suite of software features for all devices that was announced at the company’s annual developers conference, where it also announced a partnership with ChatGPT-maker OpenAI.

In the short-term, the new powers include AI-infused image editing, translation, and small, creative touches in messaging, but not more ambitious breakthroughs promised by other AI players, such as OpenAI or Google.

“While the company’s cautious approach to AI rollout has drawn criticism, robust services growth and ecosystem expansion are providing crucial momentum to help ease its continued iPhone struggles in China,” said Emarketer analyst Jacob Bourne.

“However, Apple needs to accelerate its Apple Intelligence deployment and be a bit more aggressive in emerging areas like smart glasses development to maintain an innovative edge.”

Headline trouble

Apple pushed out a software update in mid-January which disabled news headlines and summaries generated using AI that were lambasted for getting facts wrong.

Apple’s decision to temporarily disable the recently launched AI feature came after the BBC and other news organizations complained that users were getting mistake-riddled or outright wrong headlines or news summary alerts.

The company hopes that customers are attracted to buy the latest iPhone models by its new AI powers.

Along with Apple, other tech giants like Google, Microsoft and Amazon are convinced that generative AI’s powers are the next chapter of computing and are boosting spending so as not to be left behind.

Apple lost its status as the best selling smartphone brand in the crucial Chinese market last year after a pair of local rivals surpassed it with surging shipments, according to industry data provider Canalys.

“Intense competition has led to a constantly shifting landscape,” said Amber Liu, Research Manager at Canalys.