(Bloomberg) — Apple Inc. gave a reassuring revenue forecast for the current quarter, helping boost shares of the world’s most valuable company after its holiday results showed jarring declines for China and the iPhone.
Sales will grow by a percentage in the low- to mid-single digits, the company said during a conference call Thursday. Though that’s in line with the roughly 5% that analysts have been predicting, it was enough to soothe the nerves of investors following a mixed quarterly report.
The shares climbed more than 3% in late trading, rebounding from a decrease. They had dropped 5.1% this year through the close, part of a broader tech stock decline.
Revenue from China plunged 11% to $18.5 billion in the fiscal first quarter, which ended Dec. 28, Apple said earlier. Analysts had anticipated a gain to $21.6 billion. Sales of the iPhone, meanwhile, dropped less than 1% to $69.1 billion. Wall Street projected $71 billion.
The results renewed concerns about China, one of Apple’s biggest markets, where it’s struggled to fend off competition from local brands. Chief Executive Officer Tim Cook said that more than half of the decline in China stemmed from inventory issues.
“Our channel inventory reduced from the beginning of the quarter to the end of the quarter,” he said during the conference call. “Our sales were a bit higher than we forecasted them to be toward the end of the quarter. And so we ended a little leaner than we had expected to.”
The poor performance for overall iPhone sales suggested that the company didn’t get much of a lift from the rollout of a new AI platform, Apple Intelligence. Still, the new iPhone 16 performed better in countries where the AI features were available, Cook said.
Apple is playing catch-up with its biggest tech peers in AI. A staggered rollout of Apple Intelligence also has meant that consumers have had to wait for many features. And competitors have jumped out ahead in other areas, such as smart glasses. Apple’s wearables business declined over the holidays as well.
“Apple needs to accelerate its Apple Intelligence deployment and be a bit more aggressive in emerging areas like smart glasses development to maintain an innovative edge,” Emarketer analyst Jacob Bourne said in a note. “The next few quarters will test whether it can balance its cautious approach with the market’s hunger for AI innovation.”
The report also marks a changing of the guard for Apple. It’s the first to be announced under new Chief Financial Officer Kevan Parekh, who replaced longtime CFO Luca Maestri at the beginning of this year.
Total revenue rose 4% to $124.3 billion in the period, helped by growth in services revenue. Analysts had projected $124.1 billion on average. Profit rose to $2.40 a share, beating the average estimate of $2.35. Like the revenue figure, that number was a record high.
The latest iPhones aren’t markedly different than the prior models — a factor that may have led some consumers to hold off on upgrades. Though the company has touted the Apple Intelligence platform as a reason to buy the device, its earlier iPhone 15 Pro models can also run the software.
Apple is planning a larger iPhone refresh this year, including a replacement for its low-end SE model in the coming months and a thinner iPhone in the fall.
The services division, which includes the App Store and Apple Music, was a bright spot, bringing in an all-time record of $26.3 billion and growing 14%. Wall Street had been looking for $26.1 billion. Services revenue in the second quarter will climb in the low-single digits, Apple said during the call.
The Mac and iPad lineups also performed better than expected. The Mac generated sales of $8.99 billion in the quarter, beating estimates of $7.94 billion.
Apple updated several models with AI-focused M4 chips last year, and it plans to roll out a new MacBook Air soon. It’s also expected to unveil desktop computers later in the year.
Revenue from the iPad grew 15% to $8.09 billion, compared with an estimate of $7.35 billion. After taking a break in 2023 from launching new models, the company revamped the iPad Pro and iPad Air last May and refreshed the iPad mini in the fall. Cook said the new Air and lower-end models were mainly responsible for the revenue increase. The company is planning to update the low-end and Air models in the coming months.
The company’s wearables, home and accessories category, which has struggled in recent quarters, posted revenue of about $11.8 billion. That was down slightly from a year earlier and below the projection of nearly $12 billion.
The company released a redesigned Apple Watch Series 10 and rolled out two new AirPods models last year, but its latest product category — the Vision Pro headset — hasn’t been a sales driver. Parekh said the lack of a new Ultra watch in 2024 created a tough comparison for that segment.
More broadly, Cupertino, California-based Apple still faces plenty of challenges at home and internationally.
Its struggles in China have stemmed in part from not being able to offer Apple Intelligence in the country. That’s made it harder to compete with local brands like Huawei Technologies Co. Apple is working to find an AI partner that will let it launch the AI platform in China.
In the EU, where Apple’s AI won’t be offered to customers until April, the company is facing continued scrutiny over the dominance of its App Store. The company is under threat of fines if it doesn’t concede to regulators and change policies, including those related to subscription payments, that could weigh on its services results.
Locally, the company is bracing for the possibility of new tariffs during the second Trump administration. President Donald Trump has discussed imposing the levies on goods imported into the US from China and elsewhere. Right now, Apple makes the majority of its processors in Taiwan via partner Taiwan Semiconductor Manufacturing Co., while most of its devices are assembled in China.
Asked about the possibility of tariffs, Cook said Apple is “monitoring the situation.”
The company’s biggest hurdle may be in artificial intelligence, where it remains behind many of its tech peers. Apple Intelligence — introduced in stages over a period of months — has suffered from bugs, including inaccurate news summaries. And the homegrown features pale in comparison with offerings from OpenAI, Google Gemini and the emerging DeepSeek.
Cook praised DeepSeek during the call, but said that Apple’s approach would still give it an advantage.
“Innovation that drives efficiency is a good thing,” he said. “And, that’s what you see in that model. Our tight integration of silicon and software, I think, will continue to serve us very well.”
(Updates with further remarks from call starting in sixth paragraph.)
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