Over the past month, Apple blanketed television with commercials about how its newest iPhone had exciting artificial intelligence capabilities even though the company was still working on many of the features it was pitching.
But Apple’s delay with AI didn’t cut into profits. Regulators did.
On Monday, the tech giant said sales of iPhones, iPads and subscription services such as Apple Music had helped the company increase its quarterly revenue by 6 per cent to $94.93 billion (€87.4 billion) during the three months that ended in September.
The increased revenue didn’t translate into profit gains because Apple, which lost a court case in September, was forced to pay the European Union $14.4 billion in unpaid taxes. The one-time payment reduced its quarterly profit by 36 per cent to $14.7 billion.
The results exceeded Wall Street analysts’ expectations for $94.6 billion in sales and, excluding the one-time tax payment, would have topped projections for $24.5 billion in profit. Shares fell 1.8 per cent in after-hours trading.
In September, Apple unveiled iPhones that could use its generative AI system, called Apple Intelligence, to sort messages, offer writing suggestions and use a more capable Siri virtual assistant.
It released the first of those features this week, but other AI bells and whistles are coming out more slowly than expected.
Still, Apple said iPhone sales rose 5.5 per cent to $46.2 billion during the quarter that ended in September.
Apple is leaning on AI as it faces stiffer smartphone competition in China. Huawei sales have surged behind new models and interest in a phone that can be folded twice.
There has also been an uptick in purchases of Xiaomi and Vivo phones, which have helped cut Apple’s share of the Chinese smartphone market to 13.5 per cent from 14.5 per cent, according to Counterpoint Technology Market Research.
As a result of the competition, Apple’s sales in China, its second-largest market, were flat at $15 billion. The company posted sales increases in every other geographic region, including the Americas, Europe, Japan and Asia Pacific.
Services, which include the sales of apps, Apple TV+ and Apple Pay, continue to be the growth engine for Apple’s business.
The company is taking a cut of revenue from more than 1 billion subscriptions sold across iPhones and iPads. Sales of services in the quarter rose 12 per cent to $25 billion, which was less than analysts had forecast.
The resilience of that business could be challenged next year. In August, a federal judge ruled that Google is a monopolist. The Justice Department may ask the judge to address that by preventing Google from paying Apple to be the default search engine on iPhones. Such a ruling could cost Apple about $20 billion a year in services revenue.
Apple’s other devices showed strength in the quarter. Sales of Macs rose 2 per cent to $7.7 billion, while sales of iPads jumped 20 per cent to $7 billion.
The company’s wearables business, which includes the Apple Watch and AirPods, was the only area of weakness in the period. It declined 3 per cent to $9 billion.
This week, Apple released a new Mac Mini, an iMac and a MacBook Pro with more powerful chips to support Apple Intelligence. Last month, it released a new Apple Watch with a larger screen and new AirPods.
Apple’s call with analysts Thursday was the last for its chief financial officer, Luca Maestri. He is stepping down from his position in January and will be replaced by Kevan Parekh, who has worked for the company for more than a decade, most recently as vice president of financial planning and analysis.
During Maestri’s decade in the role, Apple’s sales and profits nearly doubled, while the company’s market valuation rose from about $600 billion to nearly $3.5 trillion. – The New York Times
