Apple’s overall revenue rose by 4% in its first fiscal quarter, but it missed on Wall Street’s iPhone sales expectations and saw sales in China decline 11.1%, the company reported on Thursday.
Shares fell less than 2% in extended trading.
Here’s how Apple did versus LSEG consensus estimates for the quarter ending Dec. 28.
- Earnings per share: $2.40 vs. $2.35 estimated
- Revenue: $124.30 billion vs. $124.12 billion estimated
- iPhone revenue: $69.14 billion vs. $71.03 billion estimated
- Mac revenue: $8.99 billion vs. $7.96 billion estimated
- iPad revenue: $8.09 billion vs. $7.32 billion estimated
- Other Products revenue: $11.75 billion vs. $12.01 billion estimated
- Services revenue: $26.34 billion vs. $26.09 billion estimated
- Gross margin: 46.9% vs. 46.5% estimated
Although Apple’s overall sales rose during the quarter, the company’s closely watched iPhone sales actually declined slightly on a year-over-year basis. The December quarter is the first full quarter with iPhone 16 sales, and Apple released its Apple Intelligence AI suite for the devices during the quarter.
Apple’s iPhone miss versus LSEG estimates was the biggest for the company in two years, since its first-quarter earnings report in fiscal 2023. At the time, Apple said that its miss was because it was unable to make enough iPhone 14 models because of production issues in China.
The company saw significant weakness in Greater China, which includes the mainland, Hong Kong and Taiwan. Overall China sales declined 11.1% during the quarter to $18.51 billion. It’s the largest drop in China sales since the same quarter last year when they fell 12.9%.
Apple CEO Tim Cook told CNBC’s Steve Kovach that iPhone sales were stronger in countries where Apple Intelligence is available. Currently, the software is only available in a handful of English-speaking countries, and it isn’t accessible in China or in Chinese.
“During the December quarter, we saw that in markets where we had rolled out Apple intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those markets where we had not rolled out Apple intelligence,” Cook said.
Cook told CNBC that there were three factors in the company’s China performance. He said that half of the 11.1% decline was due to a change in “channel inventory,” the fact that Apple Intelligence hasn’t launched in the region and that after the quarter ended, China issued a national subsidy that would stimulate some Apple product sales.
“If you look at the negative 11, half of the decline is due to a change in channel inventory, and so the operational performance is better,” Cook said.
Apple executives usually give some color about how the current quarter is shaping up on a call with analysts. Wall Street is expecting guidance for the March quarter of $1.66 in earnings per share on $95.46 billion in revenue.
The company reported $36.33 billion in net income during the quarter, up 7.1% from $33.92 billion in the same period last year.
Apple’s iPad and Mac sales showed strong growth over last year’s struggling sales in the holiday quarter. Mac revenue rose 15% to $8.98 billion and iPad revenue grew 15% to $8.08 billion. The company’s Mac division posted its best growth since the fourth fiscal quarter of 2022.
The company released new Macs during the quarter, including new iMac, Mac Mini and MacBook Pro laptops in October, partially contributing to the growth. Apple also launched a new iPad Mini during the quarter. Cook attributed the growth to the new products.
“It’s driven by the significant excitement around our latest Mac lineup,” Cook said.
Apple’s profit engine, its Services division, which includes subscriptions, warranties and licensing deals, reported $23.12 billion in revenue, which is 14% higher than the same period last year. Cook said that the company had over 1 billion subscriptions, which includes both direct subscriptions for services like Apple TV+ and iCloud, as well as subscriptions to third-party apps through the company’s App Store system.
The company’s “other products” category, also called Wearables, which includes Apple Watch, AirPods, Beats and Vision Pro sales, declined 2% on a year-over-year basis to $11.75 billion in sales.
Apple said it would pay a dividend of 25 cents per share and spent $30 billion on dividends and share repurchases during the first quarter.
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