Apple Lowers iPhone Forecast, As Tim Cook Touts ‘AI Announcement’

Apple’s CEO Tim Cook captured news headlines, after he teased an Apple ‘AI Announcement’ later this year during a Q1 earnings call with analysts.

The admission came after Apple posted mostly forgettable first quarter financial results that did beat Wall Street expectations, but also delivered worrying forecasts – most notably for China.

China is one of Apple’s most important markets, but in its first quarter financial report, the iPhone giant revealed that Q1 sales in that market have declined 13 percent.

Q1 results

Apple also worried investors when it forecast a drop in iPhone sales, and forecast overall revenue $6 billion below Wall Street expectations, sending Apple shares down 3 percent in after-hours trading.

But Apple did experience iPhone growth in its Q1, and first quarter sales and profit did beat analyst expectations.

For the first quarter ending 30 December 2023, Apple posted a net profit of $33.9bn, up from $30bn in the same year-ago quarter.

Total revenues rose 2 percent to $119.6bn from $117bn a year earlier. Analysts had been expecting Q1 revenues of $117.9bn.

“Today Apple is reporting revenue growth for the December quarter fuelled by iPhone sales, and an all-time revenue record in Services,” said Tim Cook, Apple’s CEO. “We are pleased to announce that our installed base of active devices has now surpassed 2.2 billion, reaching an all-time high across all products and geographic segments.”

“And as customers begin to experience the incredible Apple Vision Pro tomorrow (Friday), we are committed as ever to the pursuit of groundbreaking innovation – in line with our values and on behalf of our customers,” Cook added.

iPhone sales

Digging into the product results, we can see iPhone sales achieved $69.7bn in its first quarter, growing 6 percent to beat analyst expectations of $67.8bn.

This is a positive sign for the iPhone 15 models that had arrived in September 2023, as this reporting period was Apple’s first full quarter that included iPhone 15 revenue.

However the biggest growth area for Apple during its Q1 was its services business, which includes the Apple TV+ service as well as Apple Music, iCloud storage and the App Store. This unit saw revenue rise 11 percent to $23.1bn.

Apple’s App Store is of course facing a challenge in Europe, where a new law takes effect in March that will allow developers to skip paying commissions to Apple and place alternative app stores on the iPhone.

On the computer side, Mac sales in the first quarter rose slightly to $7.78bn, but sales of iPads were down 25 percent to $7bn.

Apple’s wearables segment (AirPods and Apple Watch) posted sales down at $11.9bn, amid warnings of weak demand and patent infringement problems with the latest Watch models.

China concern

Apple showed sales growth in all regions except for Greater China, which fell nearly 13% from the same time last year, potentially stoking fears of receding demand for Apple in its third-largest market.

Apple said sales in China in the December quarter were $20.8bn, which missed analyst estimates of $23.5bn.

Revenue in the current quarter will be at least $5 billion less than a year ago, when the company sold iPhones rapidly to replenish inventories drawn down by Covid-related factory shutdowns, Apple Chief Financial Officer Luca Maestri reportedly warned analysts on a conference call.

Apple is facing increased competition from local rivals such as Huawei, as well as competition from the increasingly popular foldable segment, where Apple does not compete.

AI announcement

Tim Cook on an earnings call on Thursday mentioned an ‘AI Announcement” later this year, CNBC reported.

Cook however did not reveal many details, but it does show that Apple intends to compete with the likes of Microsoft, Google, Amazon, and OpenAI.

Apple could have a potential widespread route to market for any AI offering if it were for example to redevelop and relaunch Siri.

“As we look ahead, we will continue to invest in these and other technologies that will shape the future,” Cook was quoted by CNBC as saying on the conference call. “That includes artificial intelligence where we continue to spend a tremendous amount of time and effort, and we’re excited to share the details of our ongoing work in that space later this year.”

Cook’s confirmation of an AI move was unusual, as Apple typically announces new software in June at its annual developer’s conference, WWDC.

“Let me just say that I think there’s a huge opportunity for Apple with Gen AI and AI, without getting into more details and getting out in front of myself,” Cook was quoted as saying.