Apple Inc. beat modest Wall Street expectations for sales and profits in its fiscal third quarter, with strong iPhone sales in China helping compensate for a global decline in the smartphone market, but its third consecutive quarter of declining revenues was the longest losing streak the company has had since 2016.

Revenue fell 1.4%, to $81.8 billion, topping analysts’ expectations of $81.69 billion. Earnings per share of $1.26 beat expectations of $1.19 per share.

On a product line basis, iPhone sales slipped 2%, to $39.67 billion, slightly below analysts’ estimates of $39.91 billion. However, executives noted that currency fluctuations took about a 4% toll on revenues, meaning that iPhone revenue grew slightly in the quarter.

Mac sales of $6.84 billion were down 7% but beat estimates of $6.62 billion, and iPad revenues dropped 20%, to $5.79 billion, against estimates of $6.41 billion. Chief Executive Officer Tim Cook (pictured) said nearly half of Mac buyers during the quarter were new to the product.

In initial after-hours trading, the company’s stock fell more than 2.7% following Chief Financial Officer Luca Maestri’s comments on the earnings call that fiscal fourth-quarter sales results would be similar to the quarter just completed, meaning a decline of roughly 1%. The stock is still up more than 50% for the year.

‘Uneven environment’

Cook said the company is navigating an “uneven macroeconomic environment” but nevertheless set records in services, advertising, its App Store and music. “It’s a direct reflection of our ecosystem’s strength,” he said.

The brightest spot was in China, where Apple grew its iPhone sales by “double digits” amid a smartphone market that declined 8% overall, according to Maestri. Total sales in the region rose 8%, to $15.76 billion, and reversed a 3% decline in the previous quarter. Apple doesn’t report regional sales by product.

“This was really done by attracting a quarterly record of switchers to the iPhone, as well as having a strong upgrade activity,” Cook told Reuters. “We also set quarterly records in China for both wearables, home and accessories and services.”

The China sales figure “was especially welcome news considering the economic challenges the People’s Republic of China continues to face,” said Charles King, chief analyst at Pund-IT Inc. China’s gross domestic product grew just 0.8% in the second quarter and is on track to miss its stated growth goals for the second year in a row.

The company’s services segment, which includes Apple TV+, grew over 8%, to $21.21 billion, well ahead of analysts’ estimates of $20.76 billion. Cook said the company now has more than 1 billion subscribers to its services platform, up from 975 million last quarter.

Emerging market opportunities

Apple sees big opportunity in emerging markets, particularly in India, Cook said. “We still have a very small market share in the smartphone market in India; it’s a very big opportunity for us,” he said. “We did exceptionally well in emerging markets last quarter and Europe also saw a record quarter, so there are some really good signs in most places in the world.” About 60% of Apple’s business comes from outside the U.S.

King said weak Mac sales suggest that “despite Apple fans’ vocal love of the Mac, Apple is no more immune to the decline in PC sales than any other vendor.” The large drop in iPad sales “implies that customers upgrading to the newest 10th generation offering may have peaked. That has to be disappointing since those products were announced less than a year ago.”

Apple has been quiet about its investments in artificial intelligence amid the current generative AI gold rush, but the company noted that it has spent $22.61 billion on research and development so far this fiscal year, or about $3 billion more than it had invested at this point last year.

“We view AI and machine learning as technologies that are integral to every product we build,” Cook said, pointing to functions such as personal voice and voicemail transcription in the forthcoming IoS 17 operating system and fall and crash detection in its iPhone and wearable devices. “None of these would be possible without AI and ML,” he said.

Photo: Apple