APPLE on Thursday (Feb 1) reported China sales that missed Wall Street targets, overshadowing overall sales and profit that beat analysts’ targets, powered by iPhone growth.

Apple chief financial officer Luca Maestri indicated that revenue in the current quarter would be less than a year ago, when the quarter benefited from a post-Covid boost of about US$5 billion in sales. Excluding that gain last year, total and iPhone revenue in the March-ending quarter would be similar to a year earlier, he told analysts on a conference call.

Apple shares were down 3 per cent in after-hours trade.

The 2 per cent rise in overall fiscal first-quarter sales for the company ended four straight quarters of sales declines on the strength of its iPhone 15 lineup, which includes devices capable of capturing three-dimensional video for the Vision Pro headset being released this week. Apple’s total installed base of devices hit 2.2 billion, up from two billion a year ago.

“We did feel good about the plus 6 per cent (revenue growth) for iPhone,” Apple chief executive Tim Cook said. “We had particularly strong double-digit growth on iPhone in emerging markets outside of China. The iPhone is doing well in those markets.”

He added: “China is the most competitive smartphone market in the world, and that hasn’t changed.”

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Cook told Reuters that iPhone sales in mainland China were down “mid-single digits” in the quarter, when accounting for currency exchange rates, although the company’s installed base of iPhones in China is at an all-time high.

For its fiscal first quarter ended Dec 30, Apple reported sales of US$119.58 billion and a profit of US$2.18 per share, both above analyst expectations of US$117.91 billion and US$2.10 per share, according to data from LSEG.

Sales of iPhones hit US$69.70 billion, growing 6 per cent to beat analyst expectations of US$67.82 billion, according to LSEG data.

Two other tech heavyweights, Amazon.com and Facebook owner Meta Platforms, reported quarterly results on Thursday which led to jumps in their share prices.

Apple’s results were seen as more mixed.

“The overall strength of iPhone 15 sales clearly reflected more pent-up demand for smartphones than expected, but the big miss in China is concerning as it could be the start of a longer downward trend there,” said Bob O’Donnell, an analyst at TECHnalysis Research.

Microsoft in January eclipsed Apple as the world’s most valuable company, with investors viewing Apple as lagging in the artificial intelligence (AI) race between Wall Street’s tech heavyweights.

Apple has said it is researching generative AI but has instead focused on its Vision Pro headset, which analysts do not expect to bring meaningful revenue for several years.

In the shorter term, analysts are increasingly worrying about sales of Apple’s signature device in China, whose economy is navigating the burst of a real estate bubble. The iPhone also faces increasing competition in China and has fallen out of favour in government offices.

Apple said sales in China were US$20.82 billion, missing analyst estimates of US$23.53 billion, according to LSEG data.

Counterpoint Research reported China iPhone unit shipments fell during the quarter, with Chinese consumers looking to novel folding phones and homegrown rival Huawei, which re-entered the market with a flagship phone powered by a Chinese-made chip.

In the rest of Asia beyond China and Japan, Apple’s sales hit US$10.16 billion, above analyst estimates of US$9.75 billion, according to LSEG data. Cook said that iPhone sales hit an all-time high in South Korea, home to Apple’s longtime rival Samsung Electronics.

The biggest growth area for Apple during its fiscal first quarter was its services business, which includes the Apple TV+ service as well as music, iCloud storage and the App Store, and which rose 11 per cent to US$23.12 billion in sales. But those results were slightly below analyst expectations of US$23.35 billion, according to LSEG data.

“The important services business was slightly lower than expected, which will likely be the most concerning item for investors since this business line continues to be the most important driver of growth,” commented analyst Gil Luria of DA Davidson.

Apple’s App Store also faces a challenge in Europe, where a new law that takes effect in March will allow developers to skip paying commissions to Apple and place alternative app stores on the iPhone.

Apple’s first-quarter Mac sales were up slightly to US$7.78 billion, in line with analyst expectations of US$7.73 billion, according to LSEG data. Sales of iPads were down 25 per cent to US$7.02 billion, missing expectations of US$7.33 billion, according to LSEG data.

Apple’s wearables segment, which includes its AirPods and Apple Watch sales, fell to US$11.95 billion after company executives had warned of weak demand. The results were just above expectations of US$11.56 billion, according to LSEG data.

Several Apple Watch models have been at the centre of a legal dispute with medical device maker Masimo and were briefly pulled from shelves before Apple removed a blood-oxygen monitoring features to comply with legal rulings and keep selling the devices. REUTERS