Apple just bought itself some time
Justin Sullivan/Getty Images; Chelsea Jia Feng
- Apple reported a decline in iPhone revenue for its third quarter.
- But revenue, along with overall profit, still beat Wall Street's expectations.
- With its Q3 results, Apple just bought itself some time before it has to show payoffs on AI.
Apple may have just bought itself some time to show off any returns from its big artificial intelligence investments despite a decline in its critical iPhone business for the third quarter.
The company reported on Thursday that Q3 revenue from iPhone sales was $39.3 billion, down year-on-year from $39.67 billion. The tech giant has been struggling to drive handset sales in the major market of China as rivals in the country, including Huawei, fight to take a bite out of Apple's dominance in the smartphone market.
Still, Apple was buoyed by the fact that those numbers, along with overall profit, beat analysts' expectations. Wall Street analysts had expected Apple to report $38.6 billion in sales for its iPhone segment.
The Cupertino company also reported $21.45 billion in profit, an 8% increase. And Apple services, which include app store revenue, also beat expectations, with the company reporting $24.2 billion in revenue against a projection of $23.9 billion.
Plus, overall, sales for Apple increased for all geographic regions except China.
Iphone sales in Greater China fell 6.5% to $14.73 billion. Apple CEO Tim Cook framed the decline to investors on an earnings call on Thursday as an "improvement from the first half of the fiscal year" when considering foreign exchange headwinds.
Apple's stock narrowly fluctuated in late trading after the news.
Moving forward, analysts say they'll be looking toward Apple's September launch of the iPhone 16, which will feature Apple Intelligence, the company's AI software.
The new iPhone model will be a key indicator of the payoff from Apple's multibillion-dollar investment in artificial intelligence, analysts say.
Cook has previously said that the company spent over $100 billion on R&D for AI.
"In future quarters, the effectiveness of these AI investments will be primarily evaluated through device sales and potential growth in subscription revenue," Jacob Bourne, an analyst for Emarketer, a sister company to Business Insider, said in a statement.
"The company faces significant challenges, including economic headwinds and intensifying competition in China. While discounted iPhone prices likely helped bolster sales this quarter, the company's future success depends on two factors: keeping AI development costs low and ensuring that new AI-driven features compel price-sensitive consumers to upgrade their devices."
Meantime, Wedbush analyst Dan Ives, who maintained an "outperform" rating for Apple ahead of the earnings call, said that analysts were "not expecting anything special this quarter, but that the "iPhone 15 remains strong and is a positive data point speaking to Apple's iPhone strength."