Apple earnings: Beats projections thanks to strong iPhone 16 sales, but China and services lag behind

Apple’s fourth-quarter earnings exceeded expectations on Thursday, driven by robust initial sales of the iPhone 16 series, a lineup emphasising Apple’s new AI-driven features. Apple reported $94.93 billion in sales, just above Wall Street’s target of $94.58 billion, with earnings of $1.64 per share, excluding a significant EU tax charge. However, weaker-than-anticipated sales in China and underperformance in other product lines caused Apple shares to dip about 1% in extended trading.

The iPhone 16, which launched only days before the quarter ended on September 28, was the star of the report, with sales growing 5.5% to reach $46.22 billion, surpassing analyst predictions of $45.47 billion. CEO Tim Cook highlighted that the iPhone 16’s release has garnered rapid uptake, outpacing last year’s iPhone 15 launch during a comparable period. “We’ve had great feedback from customers and developers already,” said Cook. “We’re off to a good start.”

“Today Apple is reporting a new September quarter revenue record of $94.9 billion, up 6 percent from a year ago,” said Cook. “During the quarter, we were excited to announce our best products yet, with the all-new iPhone 16 lineup, Apple Watch Series 10, AirPods 4, and remarkable features for hearing health and sleep apnea detection. And this week, we released our first set of features for Apple Intelligence, which sets a new standard for privacy in AI and supercharges our lineup heading into the holiday season.”
 
“Our record business performance during the September quarter drove nearly $27 billion in operating cash flow, allowing us to return over $29 billion to our shareholders,” said Luca Maestri, Apple’s CFO. “We are very pleased that our active installed base of devices reached a new all-time high across all products and all geographic segments, thanks to our high levels of customer satisfaction and loyalty.”

AI Strategy Anchored in Apple Intelligence

Apple’s artificial intelligence strategy, introduced this year, has focused on integrating AI tools within iOS rather than a standalone app, with the aim of making daily tasks easier, such as editing emails in a professional tone. Key elements of Apple Intelligence will be exclusive to the iPhone 16, which contains the necessary advanced chipsets, although some features will also work on the iPhone 15 Pro models.

While some Intelligence features debuted this week, a phased rollout has left analysts questioning whether the delay might affect iPhone upgrades. However, strong early iPhone 16 sales suggest Apple’s strategy may be paying off, allaying concerns that feature rollout gaps would deter consumers.

Apple’s Spending and Competition

Apple’s capital spending increased to $9.45 billion, up by $2.91 billion from the previous quarter. However, Apple’s spending growth remains moderate compared to competitors such as Microsoft and Meta, both of which have announced sizable investments to expand their AI infrastructure. Apple is balancing this with third-party data centres to handle some AI workloads while relying on in-house silicon to keep specific AI processes within its own ecosystem. 

Despite the iPhone’s success, Apple’s services and product lines came up short in several areas. Its services, including iCloud and Apple Music, reported revenue of $24.97 billion, missing analyst estimates of $25.28 billion. The company’s Mac and iPad sales also lagged, reporting $7.74 billion and $6.95 billion, respectively, slightly below expectations. The home and wearables division, which includes the Apple Watch and AirPods, recorded $9.04 billion in sales, also below the predicted $9.2 billion.

Steady iPhone Sales Amid China’s Shaky Market

China, a critical market for Apple, remains an area of concern as fourth-quarter sales in the region came in below expectations at $15.03 billion, down slightly from the prior year. Visible Alpha’s average forecast for China sales had been $15.78 billion. However, the new iPhone 16 sales bolstered Apple’s position, with China sales dropping by less than 1%, a figure that could have been more pronounced without the iPhone’s early success.

As Apple faces both market challenges and high consumer expectations, its fourth-quarter report underlines a strategy focused on steady iPhone upgrades and the slow rollout of AI-powered features. While the company missed the mark on some fronts, the iPhone 16’s promising start and early adoption of Apple Intelligence reflect a strong footing as Apple heads into the December quarter.