Apple profit tops Wall Street target even as iPhone, China sales fall short

By Stephen Nellis

(Reuters) -Apple beat Wall Street’s quarterly profit estimates on Thursday, but iPhone sales and China revenue for the holiday quarter were weak due to stiff Chinese competition and a slow rollout of artificial intelligence features.

The company’s overall sales and profits were boosted by stronger-than-expected sales of iPads and Macs, where new chips helped persuade customers to upgrade.

The lack of AI selling points contributed to iPhone sales that dropped slightly to $69.14 billion, compared with the $71.03 billion that analysts were expecting, according to LSEG data. Greater China sales dropped to $18.51 billion, compared with $20.82 billion a year earlier and below the $21.33 billion that a Visible Alpha survey of five analysts expected.

Shares dipped 0.25% in choppy after-market trading.

Total sales of $124.30 billion for the fiscal first quarter ended Dec. 28 inched past Wall Street’s target of $124.12 billion, according to LSEG, while earnings per share of $2.40 comfortably beat the consensus target of $2.35.

The iPhone maker has positioned AI as a set of new capabilities and features such as drafting emails and transcribing phone calls, but the company is rolling the features out over time and has not yet secured a local partner in China to release them.

In an interview, Apple CEO Tim Cook said AI features, called Apple Intelligence, are driving sales of the company’s new devices.

“We saw that in markets where we have rolled out Apple Intelligence, the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available,” Cook said.

While Cook said Apple Intelligence is coming in new languages such as French and German in April, he said there is no timeline for when it will become available in China.

“We continue to work with the regulators and will release it as soon as we can,” Cook said.

Cook told Reuters that about half of Apple’s 11% decline in China revenues was attributable to changes in how much inventory the company’s resellers held.

“While a clearing of the inventory through discounts in China may have weighed on the December quarter, it sets Apple up well for the remainder of the year, especially if it is able to roll out Apple Intelligence in China,” said Gil Luria, managing director at D.A. Davidson.

Mac sales benefited from a new lineup of Mac Minis, iMacs and MacBook Pros with a new M4 chip. Apple Intelligence features are more widely available on Apple’s Macs and iPads because their larger size means they have more powerful chips.

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