(Bloomberg) --Apple Inc. sales declined more than anticipated in China last quarter, overshadowing generally upbeat results that included bumper sales of new iPads.
Revenue from China fell 6.5% to US$14.7 billion in the fiscal third quarter, which ended June 29, Apple said on Thursday. Analysts had anticipated $15.3 billion.
Though overall revenue rebounded in the period — exceeding estimates — the China news rekindled fears that Apple is losing ground in one of its most important overseas markets. The company is up against fiercer competition in the region, and the government has reined in the use of foreign technology in some workplaces. Chinese economic growth also has worsened.
Apple attributed much of the decline to the impact of a strong dollar, saying that the underlying business in China is actually healthier than before. Three months ago, executives said the slowdown was less about an underperforming iPhone and more about weak sales of other products.
“We do realize it’s a very competitive smartphone market, but we feel we are doing quite well within the context of the broader economy,” Chief Financial Officer Luca Maestri told Bloomberg Television’s Emily Chang.
The shares bounced up and down in late trading following the earnings report. They had been up 13% this year through the close, lifted by investors’ hope that new artificial intelligence technology will help boost sales.
Total sales rose 5% to $85.8 billion in third quarter, beating the $84.5 billion estimate. Three months ago, Maestri said the company would grow by a percentage in the low single digits during the period.
Apple said that sales in the September quarter will grow at a similar level as the just-ended period, implying an increase of about 5%. Wall Street has projected a 4% clip. Services will be a highlight in the period, advancing in the double digits, executives said during a conference call with analysts.
Earnings amounted to $1.40 a share in third quarter, exceeding the $1.35 analysts had estimated. The sales period is typically one of Apple’s slowest, coming at a time when many customers are waiting for the next iPhone to arrive in the fall.
The tech titan is also counting on a new suite of AI features — dubbed Apple Intelligence — to help spur demand for its latest devices.
Sales of Apple’s flagship product, the iPhone, came in at $39.3 billion. Though the number was down slightly from a year earlier, it edged past Wall Street expectations. Three months ago, the company declined to forecast iPhone revenue for the June period — a signal it was still unsure about the shaky smartphone market.
Apple’s iPad business benefited from the long-awaited release of new models. The company introduced major upgrades in May after a sluggish stretch for the tablet lineup. The new products included a pricier iPad Pro with an M4 chip, as well as a faster version of the iPad Air with a bigger-screen option.
The Cupertino, California-based company reported $7.16 billion in revenue from the category, up 24%. That beat the estimate of $6.6 billion. Apple previously said it expected the iPad to grow by a percentage in the double digits during the June period — something it easily accomplished. For several months, some customers and schools had been holding out on iPad purchases in expectation of the new models.
“About half the customers who purchased an iPad were new to the product,” Maestri said.
Beyond the new iPad Pro and iPad Air, Apple is working on versions of its entry-level iPad and iPad mini with faster processors. That could spur additional upgrades when they are released sometime in the coming months.
The company also unveiled Apple Intelligence last quarter, showing off the new AI features at its developers conference in June. But the technology — headed for the iPhone, iPad and Mac — isn’t expected to be released to customers until October. Apple also hasn’t yet explained how it plans to generate revenue from the features, beyond spurring demand for compatible devices.
“We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers’ lives,” Chief Executive Officer Tim Cook said in a statement.
The services business, which includes the App Store, Apple Music and the TV+ streaming platform, continues to be a growth driver. It generated $24.2 billion in sales last quarter, up 14%.
Wall Street was looking for just under $24 billion. Still, that business is under pressure from regulators who are seeking changes to the App Store, which they see as an anticompetitive force in the industry. That could ultimately limit Apple’s ability to collect revenue from subscriptions and app downloads.
Mac revenue rose 2.5% to $7.01 billion, helped by the start of the back-to-school shopping season. That was in line with Wall Street predictions.
Apple hasn’t made major changes to the Mac since the end of last year, but did add the M3 chip to the MacBook Air laptop in March. The computer line could be in for a boost later this year when Apple kicks off a shift to the more powerful M4 chip. The company is planning to update every Mac line with the new processor, which can better handle AI tasks, Bloomberg News has reported.
Wearables, Home and Accessories — a once high-flying category that includes AirPods, the Apple Watch, the company’s TV set-top box, Beats headphones and HomePods — continued to struggle. That business brought in $8.1 billion, down 2.3%. Still, that was better than the $7.8 billion estimate.
Apple only made minor changes to its most recent smartwatch lineup, and a patent dispute forced it to remove a blood-oxygen feature from some models. The company also hasn’t updated its AirPods in several quarters.
But reinforcements are on the way: Apple is planning bigger displays for some watch models this fall, alongside a revamp to its low-end and mid-tier AirPods.
The upcoming iPhone 16 line should fuel a wave of demand. But the new models won’t include major design changes. The company’s iPhone 16 marketing pitch will be more about support for Apple Intelligence, faster processors, adding an Action button to the lower-end versions, and a camera-control button on the latest Pro models.