"Apple's iPhone revenue fell for a second consecutive quarter, a soft demand signal investors hope will turn around once the company releases new AI features in the fall.
For its quarter ended in June, iPhone sales declined nearly 1% from the prior year to about $39.3 billion, and overall Apple revenue increased about 5% to $85.8 billion. Both figures beat Wall Street expectations.
Apple has also been trying to catch up to rivals in the artificial-intelligence arms race, unveiling an array of new AI tools in June that investors hope will encourage users to upgrade their iPhones. Microsoft, Meta Platforms and Alphabet have spent billions on generative AI, spurred on by the release of startup OpenAI's ChatGPT software released in late 2022.
The world's biggest technology companies have yet to unveil a strategy that points to reliable AI-infused profits in the near future, especially as many have ramped up spending.
Apple's AI strategy, as outlined by the company, so far has come at a far lower cost compared with peers but depends significantly on whether customers will be convinced to buy new phones.
"We think Apple Intelligence will provide yet another compelling reason for customers to upgrade," said Apple Chief Financial Officer Luca Maestri in an interview.
Apple's shares were roughly flat in after-hours trading following the earnings announcement.
Revenue in the Greater China region fell by more than 6% from the prior year to $14.7 billion. China, Apple's third-largest regional market, has been an area of concern among investors in recent quarters. Domestic smartphone champion Huawei recently has made major inroads into Apple's core market of high-end smartphones.
In the June quarter, iPhone sales in China fell 5.7% over the prior year as domestic vendors like Huawei continued to gain share, according to research firm Counterpoint.
The company's services unit, which includes App Store revenue and streaming services, provided a cushion for declining iPhones sales, with sales increasing by more than 14% to $24.2 billion.
Although overall iPhone and China sales have lagged, many investors remain optimistic about the company's prospects in the next year, believing the company's AI plans will spark a rally. Apple also said sales rose in the period for iPads and Macs.
"The next important moment for Apple is how well the AI launch goes," said Charles Rinehart, chief investment officer at Johnson Investment Counsel, an Apple shareholder.
Many Apple customers are also due for an iPhone upgrade, with 2021 being a strong year for iPhone purchases. "Apple has the wind at their back," Rinehart said.
At its developer conference in June, Apple announced Apple Intelligence, its system for deeply embedding generative artificial-intelligence features into its operating system and improving Siri voice assistant. For some more advanced capabilities, Apple is partnering with external generative AI providers, with OpenAI's ChatGPT as the first partner.
Analysts expect the new AI features to help reinvigorate iPhone sales. They will only be available to the iPhone 15 Pro, the company's most premium iPhone model. Apple is expected to release its coming iPhone models in September.
The release of the new tools has taken longer than expected. Earlier this week, the company said that the initial batch of new AI features won't be ready for the September release of the next iPhone operating system, iOS 18. Instead, it will be available in iOS 18.1, expected a few weeks later.
Other AI features, such as the ChatGPT integration, won't be available until later this year or even next year.
Apple expects overall sales for the current quarter ending in September to grow roughly the same as the June quarter, slightly higher than estimates." [1]
1. Apple's iPhone Sales Slide Again --- Company banks on coming artificial- intelligence features to boost demand. Tilley, Aaron. Wall Street Journal, Eastern edition; New York, N.Y.. 02 Aug 2024: B.1.
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